As Long As the Lawyers Get Paid…

You may have noticed that the NFL has been getting peppered with lawsuits recently.  With such a litigious offseason, and being a former lawyer, I thought you might appreciate a summary of what’s going on in the NFL’s legal world right now and, later, a look at some of the many legal issues that face the league and NFL teams alike.

We’ll start today one of the most recent and interesting cases, filed by Jonathan Vilma against NFL Commissioner Roger Goodell.

Jonathan Vilma v. Roger Goodell  (filed May 17, 2012 in U.S. District Court, Eastern District of Louisiana)

On May 17th, New Orleans Saints linebacker Jonathan Vilma filed a lawsuit against NFL Commissioner Roger Goodell for libel and slander.  Vilma is one of several Saints players (some of whom are no longer with the team) who were recently punished for their role in the New Orleans Saints “bounty” system, under which players were rewarded with cash “bounties” for injuring and/or sidelining opponents (a scandal that has been dubbed “Bountygate” by the media—how original).  Vilma received the harshest punishment among the players, with a suspension for the entire 2012 season.

Vilma (51) and the coach behind Bountygate, Gregg Williams

Vilma claims that Goodell committed libel, slander and the intentional infliction of emotional distress in the course of disciplining Vilma.  The lawsuit, filed in federal court in Louisiana, claims that public statements made concerning Vilma’s involvement in Bountygate were false.  Vilma has vehemently denied his alleged role in the team’s bounty system and has appealed his suspension.  He has also demanded that Goodell release any evidence he has that directly links him to the payment of bounties.

The implications of this suit on the NFL go well beyond this isolated case.  Before I get into that, however, allow me to give a brief law lesson…

LIBEL AND SLANDER

You will hear the media refer to this case as a defamation lawsuit.  “Defamation” is an umbrella term that covers any false statements made about someone else that cause some harm to the subject of the statements.  Black’s Law Dictionary, the Webster’s of J.D.s, defines “defamation” as “[a]n intentional false communication…that injures another’s reputation or good name.”

It is important, though, to understand that Vilma’s suit specifically alleges that Goodell committed libel and slander when accusing him of being part of the bounty scandal.  “Libel” is defamation that is communicated in writing, pictures or signs.  Black’s elaborates further:  “In its most general sense, any publication that is injurious to the reputation of another.”  As you might have guessed, “slander” is the oral communication of false statements that injure another’s reputation.  Of course, an absolute defense against to charges of libel and slander is proof that the statements made about the defendant were true.

Get it?  'Cause he's a mime, and slander is spoken? Hah!

Why is it important to distinguish libel and slander from defamation?  In any correctly-written legal complaint, and Vilma’s is one, the plaintiff must set out each legal basis for the lawsuit separately.  Then, he must prove each theory to receive damages.  If one theory can’t be proven, then he may still have a case under another.  During the pretrial process, some theories might be thrown out, or dismissed, leaving others open for trial.

Vilma’s complaint claims five theories of libel:  (1) libel per se*, with injury to professional reputation; (2) libel per se, with injury to personal reputation; (3) libel per se, with accusations of criminal conduct; (4) libel by implication; and (5) libel with reckless disregard, or malice.  Since libel applies to written statements, Vilma is referring to any written statements Goodell has made to the public, such as press releases.

As for Vilma’s theories of slander, the second verse is the same as the first.  The complaint alleges:  (1) slander per se, with injury to professional reputation; (2) slander per se, with injury to personal reputation; (3) slander per se, with accusations of criminal conduct; (4) slander by implication; and (5) slander with reckless disregard, or malice.

INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS

Intentional infliction of emotional distress (or “IIED”) is a fun claim to study, just because of the various scenarios that can give rise to it.  As we go about our daily lives, we have to endure a certain amount of emotional distress, just from the sheer rudeness of others—honking, cutting in line, cursing in traffic, etc.—and we are expected to have skin of a certain thickness and deal with it.  However, IIED comes into play when the malice of another person has risen to such a level that the victim suffers significant emotional harm.

A plaintiff claiming IIED has to show:

(1)    “Extreme or outrageous” behavior that

(2)    Intentionally or recklessly caused

(3)    Severe emotional distress

A successful claim for IIED has to be about more than hurt feelings—there has to be some malice by the offender who acts beyond all reasonable bounds of decency, causing trauma to the victim.  A good example is taking someone you know to be an extreme claustrophobic and locking them in a dark closet.  It’s hard to believe that a bruising linebacker such as Jonathan Vilma can even suffer IIED at the hands of a guy in a suit, but that's not for me to judge without hearing all the facts (by the way, Vilma would need to show evidence of his emotional trauma, like therapy bills). 

To learn more about IIED, read this helpful article on FindLaw.com:  http://injury.findlaw.com/torts-and-personal-injuries/intentional-infliction-of-emotional-distress.html.

WHAT THIS MEANS FOR THE NFL AND ROGER GOODELL

The NFL needs this case to disappear quickly, preferably with a dismissal.  Why?  Well, the longer the case survives, the greater chances that the judge will order discovery, which would certainly include compelling Goodell to provide the evidence obtained by the league indicating that Jonathan Vilma was directly involved in the bounty system.  The reason this is undesirable for the league is that they would likely need to identify the sources of their information, the identities of which have been confidential to this point.  A release of this information would send a chill through the league, discouraging cooperation by players and team personnel in similar investigations in the future.

The league is also concerned with the precedent of such a suit being given credibility by the courts.  To begin with, the NFL will want the courts to recognize that their involvement in such matters is preempted by the collective bargaining agreement, which gives the NFL commissioner ultimate authority in meting out punishment to offenders of league rules.  If the court decides to hear the case, that decision could undermine the commissioner’s authority.

Of course, an alternative to trial is an out-of-court settlement.  However, this prospect yields its own dangers.  If the NFL and Goodell agree to compensate Vilma in any capacity, even a reduction in his suspension, you’re likely to see copycat lawsuits by punished players in the future. 


UPDATE:  On July 2, 2012, Vilma filed a second lawsuit in federal court alleging that Goodell had not made a timely decision on Vilma's appeal of his season-long suspension resulting from the bounty scandal.  The basis for the suit was that, according to Vilma, the collective bargaining agreement required Goodell to make a ruling as soon as practicable after the appeal hearing, which took place on June 18th.  According to this new complaint, since the other players involved in the case presented no new evidence at that hearing in protest, Goodell should have made his decision by June 25th, the first business day after the record in the case was closed.  However, Goodell rendered the lawsuit moot by issuing his ruling the very next day and upholding the suspension of Vilma and other punishments meted out to other players involved in the scandal.

*An action is libelous (or slanderous) “per se” if the statements are such that the plaintiff doesn’t need to prove the damages caused by their impact.  A good example is a statement that accuses someone of committing a crime.  Contrast this to a statement that is “libelous per quod,” which might not usually be damaging, but has a damaging effect because of the circumstances or context in which it was made. 

Yes, RG3, There is a Tax Man

As many of you are aware, the deadline for filing your 2011 U.S. federal and state tax returns is this Monday, April 16th.  Although this can be a painful time for us Americans, it may give you comfort to remember that this annual torture is also borne by professional athletes, including players in the NFL.  Whatever your occupation or income level, April 15th (or the occasional 16th) is a date to be dreaded.

What sets professional athletes apart, however, are certain tax issues that the rest of us are unlikely to face, at least on the same scale.  Today we’ll take a look at two of these taxing matters:  whether NFL fines are deductible and city wage taxes.

Are NFL Fines Tax Deductible?

What I wouldn't give for a whole season off...

If you’ve been following the latest NFL news, you’ve probably heard more than you want to about the New Orleans Saints and their “bounty” system, which paid cash bonuses for hits that caused injury to opposing players.  The fallout from the scandal was swift, and the punishment harsh:  an indefinite suspension for defensive coordinator Gregg Williams, who is now with the St. Louis Rams; head coach Sean Payton is suspended without pay for the entire 2012 season; general manager Mickey Loomis is also suspended without pay for the first eight regular season games; and the team must pay a $500,000 fine. 

The league has not yet imposed fines on the players who were involved.  However, this is only because Commissioner Roger Goodell wants to investigate further the extent of each player’s involvement.  He wants to make sure each actor’s fine is commensurate with his level of culpability.  Since the bounties were primarily player-funded, you should not expect Goodell to go lightly on anyone.

In the meantime, maybe the players involved should contact their CPAs (the NFL Players Association has already hired lawyers for them) and ask them the question I’m sure is burning in their brains:  “Will my fines be tax deductible?”*

Your first reaction might be a resounding “No.”  These acts, and most actions resulting in NFL fines, were violent, broke the rules and were just plain wrong.  The IRS, however, doesn’t always care about where items on the balance sheet fall on the morality scale.  Instead, we have to take a look at the tax code’s requirements for business expense deductions:

‘  The expense must be both “ordinary and necessary.”  To be “ordinary,” it has to be common and accepted in the trade or business.  An expense is “necessary” if it is “helpful and appropriate” for your trade or business.  The IRS emphasizes in Publication 535 that the expense doesn’t have to be indispensable to your business to be eligible for deduction.

‘  Despite its generally amoral nature, the U.S. tax code does have a kind of moral compass.  Penalties and fines that result from any violation of law are not deductible.  This can include penalties for violent crimes, as well as for nonviolent crimes, like a parking ticket.  Instead of being based in morality, though, the reason for this is that allowing such a deduction would essentially result in the government giving back the money that it took from you for the violation of law.

Now that we have the standard for a business expense deduction, let’s apply it to the case at hand.  Was the bounty system “ordinary”?  We would like to think that this was an isolated incident, but revelations from multiple sources since the story first broke would indicate otherwise.  For one thing, it appears that Gregg Williams had such a system at each of his various stops around the league—including the Washington Redskins and Buffalo Bills.  While many players have come forward condemning Williams and the Saints’ players, others have just shrugged their shoulders.  Some, like Pittsburgh Steelers linebacker LaMarr Woodley have come out and said that incentives in player contracts are much like player-sponsored bounty systems.

Now we have to ask whether the fine is necessary, meaning “helpful and appropriate.”  Certainly the players would argue that the bounty system was “helpful and appropriate” as an incentive to play with more aggression, which better positions the team for victory (this is Woodley’s basis for his comparison).  As for the payment of the fine itself, it would probably even rise to the level of “indispensable” (again, not required), since a player has to pay his fine to be able to continue playing in the league.

OK, what about the restriction on fines and penalties?  The recent Saints’ bounty system resulted in violence fueled by greed.  Morally reprehensible.  However, though bounties are prohibited by NFL rules, they are not a violation of U.S. or state law, for now.  There’s a chance this could change, though.  United States Senator Dick Durbin is putting together a Judiciary Committee hearing about the use of bounty systems in the NFL and the other professional sports leagues.  For the most part, hearings like these are little more than a good show for politicians’ constituents.  However, you never know in this town, especially if there are many more revelations of other bounty systems in the weeks and months to come.

"But Coach Williams, what if we get caught?"
"Don't worry, Vilma.  Your fines will be tax deductible!"

So, it looks like NFL fines (and fines imposed by a player's team) are deductible as business expenses.  It is important to note, finally, that business expenses must exceed two percent of an employee’s adjusted gross income to be deductible.  With the exorbitant salaries for many players, the fines levied by the NFL might not meet this standard—though in this case, the league will probably try their hardest to make it so.

City Wage Taxes (“We just lost to the Eagles and now this?!?”)

It may be news to some of you, but not others, that there are some cities and counties that impose a tax on wages earned within their boundaries.  Most jurisdictions only impose this so-called “wage tax” on residents.  However, there are some notable exceptions, cities that also impose this tax on non-residents, at an equal or lower tax rate.

What does this mean for an NFL player?  Well, for those who are residents of these cities, it means an extra ding on every paycheck.  Remarkably, it also applies to a player’s game check when that player is in a wage tax city for an away game.  In other words, a player is taxed even though he is on the visiting team.  The amount of the tax is based on the number of days you were in the city.  As you’ll see from the list below, this tax is not going to be insignificant when you consider how much an NFL player makes for playing in just one game.

The following are NFL cities that apply a wage tax, with the tax rates of each (as of August 2011): 

‘  San Francisco, CA  (1.5% for both residents and non-residents, imposed on employer)

‘  Denver, CO  (for both, $5.25 on income over $500)

‘  Indianapolis, IN  (1.62% for residents; 0.405% for non-residents)

‘  Baltimore, MD (3.05% for residents; actually a state tax for non-residents, 1.25%)

‘  Detroit, MI (2.50% for residents; 0.013% for non-residents)

‘  Kansas City, MO  (1.0% for both)

‘  St. Louis, MO (1.0% for both)

‘  New York City, NY  (between 2.9% and 3.876% for residents only)

‘  Cincinnati, OH  (2.10% for both)

‘  Cleveland, OH, (2.00% for both)

‘  Philadelphia, PA  (3.928% for residents; 3.4985% for non-residents)

‘  Pittsburgh, PA  (3.0% + $52 per year for residents; 1.0% for non-residents)

The city offered an amnesty period back in 2010

As you can see, Philadelphia, PA boasts the highest city wage tax.  Gotta feel sorry for players in the NFC East…

Well, I hope this has made you feel a little bit better about your own tax return.  If not, and you’re thinking about filing late, or perhaps contemplating an alternative to filing altogether, tune in for our next post, when we’ll look at the fates of some NFL players who tried to buck the system.

*Another question should be whether payments a player received from the bounty system need to be reported as income.  From the articles I’ve read, the answer is yes—even if they were “under the table” and in violation of league rules, income is income and should have been reported.