The $1 billion National Football League concussion settlement, already hobbled by a wave of litigation over brain injury payouts, got more complicated as lawyers for retired players and third-party lenders sparred Jan. 23 over the limits of a district court’s authority to control the class settlement.

The stakes are high, reflected in the questions posed by the three-judge panel of the U.S. Court of Appeals for the Third Circuit to lawyers for Atlas Legal Funding LLC, RD Legal Finance LLC, and Thrivest Specialty Funding LLC, who advanced funds to retired players set to receive payouts and included an arbitration clause in loan agreements.

“You are suggesting that your subsequent agreement with a player that contains an arbitration provision somehow divests the district court—who has the responsibility to oversee the settlement—divests the court of jurisdiction?” Chief Judge D. Brooks Smith asked Thrivest attorney Peter Buckley, of Fox Rothschild in Philadelphia.

Third-party funding agreements, under which lenders advance money to players expecting big payouts, are prohibited under the settlement agreement between the NFL and its former players, many of whom claim chronic brain diseases after years of playing the sport.

Arbitration Agreements

The lenders say Judge Anita S. Brody, who oversees the concussion settlement in the U.S. District Court for the Eastern District of Pennsylvania, overstepped her authority in issuing an injunction of third-party lending agreements, especially when they weren’t parties to the concussion litigation.

They also contend that the Federal Arbitration Act, which facilitates arbitration agreements, superseded the district court’s authority to broadly bar loan agreements with players, leaving lenders holding the bag.

“I’m standing here in a situation in which my client payed $500,000 in advance, and the player got both that and the award,” said Buckley, who argued that only an arbitrator may decide the contract dispute.

The crux of the six consolidated appeals is a ruling by Brody that such such loan agreements were void because of a clause in the class settlement agreement that bans players from assigning their claims to third parties.

The anti-assignment provision was meant to protect class members who by definition are cognitively impaired from years of concussions, Brody said in the order, which also directed players who received loans to return the money to the lenders.

Voided Contracts?

Samuel Isaacharoff, who represented class counsel Christopher Seeger, of SeegerWeiss in New York, and former NFL player William White, said the terms of the class settlement were clear.

Isaacharoff is a professor at New York University Law School.

“The December order voided the contracts,” Isaacharoff said, adding that the non-assignment clause in the NFL settlement was purposeful.

“This was done by negotiation by the parties,” he said. “We wanted to protect the players from this kind of predatory lending.”

But Smith pressed the point, citing the need for a “limiting principle” to define the court’s plenary powers in such cases, especially when a court order affects non-parties who have issued loans with arbitration clauses to class members.

“Does the district court have the authority to determine how a specific class member may use the funds that are distributed?” Smith asked. “That’s the real issue here, and you and I both know that’s a huge issue in terms of a district court overseeing and presiding over a class action.”

“That’s a question of first impression,” Isaacharoff replied, arguing that the court retains control of settlement until they are officially distributed.

But Isaacharoff also insisted that a third-party lender shouldn’t be able to divest a federal court of jurisdiction over a longstanding dispute “simply by, in a subsequent matter, putting in an arbitration clause.”

Judge Stephanos Bibas, however, said the court had to be “extremely cautious” in its assessment of the district court’s exercise of authority.

“We’re at the outer reaches of Article III,” Bibas said.

A decision in the case isn’t expected for several months.

Judges Smith, Biba, and Michael A. Chagares heard arguments in the appeal.

Fox Rothschild represented Thrivest. Boies Schiller Flexner LLP represented RD Legal. The Law Offices of Raul Sloezen represented Atlas.

The case is In re Nat’l Football League Players’ Concussion Injury Litig., 3d Cir., No. 18-2184, oral argument 1/23/19.