Examining Noel v. Klutch

The most interesting NBA story of the week was business related.  Actually, it was a court filing. Nerlens Noel sued his former agents Rich Paul and Klutch Sports Group, LLC, accusing them of bungling the negotiation of Noel’s contracts over the last few years and costing Noel millions ($58 million actually).  In short, Noel was eligible for a big extension and he fired his agent at the urging of Paul, who allegedly promised that he could do better.  There has been some insightful reporting on this case but, since the pleading is available, I thought we could run through the allegations verbatim to see what that review can yield:

-Before delving into the pleading itself, what is particularly salacious about this lawsuit is that Paul and Klutch are super tight with LeBron James, Anthony Davis, and Trae Young, some of the biggest names in the NBA.  One would think that Noel didn’t lightly choose the path of burning bridges with such big names in the industry.  On the other hand, I might be a little pissed at anyone who cost me $58 million.

-As a preliminary matter, the case was filed as a petition in Texas state court.  None of the parties reside in Texas but Noel alleges that Paul and Klutch all have been continuously doing business there, which is probably true.   

-The petition starts with a recitation of Noel’s backstory: his career at Kentucky and the fact that Philly drafted him sixth in 2013 and his trade to the Mavs in February 2017.

-In the summer of 2017, Noel was a restricted free agent and Dallas offered him a four-year $70 million deal.  While the offer was on the table, in July 2017, Noel went a birthday party in Los Angeles for Ben Simmons.  Paul, who was Simmons’ agent, happened to be sitting next to Noel at the party.  They, of course, discussed business.  Paul told Noel that he should reject the $70 million offer and that Noel was a “100 million man,” which was the maximum amount that Noel could be offered.  Noel’s 2016-17 season was actually a down year.  Noel missed his entire rookie year with a knee injury (suffered before he was drafted) but over the next two years, he put up 10.5 ppg and 8.1 rpg in 30 mpg.  In 2016-17, Noel only played 20.5 mpg (22 mpg for Dallas).  It does seem strange that, after a down year, Noel would take a large guaranteed payout.

-Shortly thereafter, Noel fired his current agent (Happy Walters) and hired Klutch.  They immediately rejected the Mavs’ offer and took the alternative one-year deal, known as the qualifying offer (which totaled $4.1 million), with an eye towards seeking a maximum deal the next off-season.  Paul advised Noel to stop any future negotiations with Mavs at that time.  In other words, they were betting big on Noel having a great season and being a hot commodity when he entered unrestricted free agency the next summer.

-Noel’s big bet really didn’t pay off.  His 2017-18 season was a drag.  He tore a thumb ligament and missed 52 games.  When Noel did play, the Mavs limited him to 15.7 mpg and he had only 4.5 ppg and 5.6 rpg.   Noel was still youngish (23) and super athletic but backup centers don’t get max offers.

-This is when things got bad.  Paul “began to lose interest in Noel as a client.”  Noel alleges that Klutch never gave any proposals or strategies regarding how to get a long-term deal.  Noel didn’t have any strong suitors so he took another low short term deal with OKC (two years, $3.75 Million) with an opt out after the first year, which would give Noel the shot to make more money if his market heated up again.  Noel played hard in OKC but played only 14 mpg.  A the notion that he was a limited backup center seemed to be setting in.

-Noel opted out of the second year of the deal and wanted a better deal in 2019 free agency.  Again, Klutch never presented any strategic plan to secure a long term deal (though the petition does state that Paul advised Noel to opt out of the OKC deal).  Free agency went poorly.  Noel says a false rumor was circulated by someone that Noel was about to sign a long term deal with OKC and that the rumor killed Noel’s market with other teams.  Noel re-signed with OKC for a relatively paltry one year, $1.9 million deal.

-The petition gets a little squishy at this point.  While first alleging that Noel got no offers in summer 2019, Noel drops a claim that he was told by his old coach from Philly, Brett Brown, that Philly had been trying to call Paul/Klutch to make an offer but received no response from them.

-Noel played better in 2019-20 for OKC (his minutes ticked up to 19 mpg and he had 7.7 ppg on .685 FG%).  Noel thought about firing Klutch in January 2020 but was told by another Klutch employee that OKC was planning to offer that elusive three-year deal (For $7-10 million per year) that Noel had contemplated.   This satisfied Noel and he did not terminate the relationship with Klutch. 

-When 2020 free agency started, Noel didn’t immediately hear from OKC or any other team.  The Knicks called on the second day of free agency and ultimately offered a one year, $5 million deal, which Noel signed on November 25, 2020.  Klutch negotiated the deal and wanted the usual 2% commission.  Noel later learned that Houston and the Clippers were trying to call Paul but that he did not respond to them.

-A few weeks later, Noel learned that “Paul had a history of mismanaging and ignoring other clients and costing them significant money.”  In addition, Paul and Klutch was “only focused on serving their ‘marquee’ client and did not have the capacity to provide competent service to other clients….”  The petition specifically sets the examples of Norris Cole and Shabazz Mohammad as players whose deals were screwed up by Klutch.  Noel fired Paul on December 19, 2020.

-After another solid season as a backup center, Noel got a three-year $32 million deal from the Knicks this summer.  Noel’s journey with Paul was a huge loser.  The difference between the Maverick offer in 2017 and the actual contracts Noel took over the same four years was $58 million.  Noel blames Klutch for failing to adequately represent him.

-Noel’s petition has five causes of action.  The first cause of action highlights a procedural hurdle, namely that the NBPA standard agent contract has an arbitration clause to adjudicate all disputes.  Noel argues that arbitration clause is invalid as a matter of public policy and should be voided.  I haven’t studied Texas law but most jurisdictions are really reluctant to invalidate an arbitration clause.  In fact, most courts favor these clauses for a variety of reasons (By way of example, the Supreme Court has upheld forced arbitration clauses against ordinary individuals who argued that they were bullied into the agreement by large corporations).  Noel, even at his relatively low NBA contracts, has vast resources to properly arbitrate and there is no reason to think arbitration would be unfair to him. 

-Assuming that Noel can get past the arbitration clause, the other four causes of action are substantive (and he can fully assert them if he has to arbitrate the dispute).  Noel primarily argues that Klutch breached its fiduciary duty to Noel by advising him to reject the 2017 Dallas offer and go for the “max deal” and that Klutch lied about offers that were being made, failed to strategize with Noel, and did not return phone calls from potential free agent suits (the other three causes of action duplicate this same allegation but dress it up as breach of contract, breach of the covenant of good faith and fair dealing, and negligence).

So, where does this leave us? 

-Noel is pissed that Paul promised him a better deal and supremely under-delivered.  Unless Texas law has some strong case law to void the arbitration clause, the case is likely to be tossed over to arbitration.  Clearly, Noel’s goal in filing the case is to let the entire NBA and world know that Klutch doesn’t care about its non-marquee clients and its competence is dubious.  Had the case gone to arbitration, all the records would’ve been sealed.  Now, there is a glorious pleading that craps all over the vaunted Klutch.  Indeed, The New Yorker wrote a glowing profile about Paul and Klutch in June entitled “LeBron James’s Agent Is Transforming the Business.”  Ummm….Noel begs to differ.

-The petition gave me a strong impression that Klutch did screw Noel in promising the max deal but I was less convinced that the legal case is strong.  In order to prove breach, Noel doesn’t have to just prove that Klutch did a bad job but, rather, that it didn’t fully advise him of the risks and that was the reason Noel lost out on the money.  Noel’s decision to turn down big money was a risk but can he prove that Paul gave concrete advice?  Telling Noel he is a “max guy” doesn’t sound like quite enough.  Is there a memo or opinion letter to rely on somewhere?  I’m guessing not based on how Noel framed the representation as disorganized and haphazard.   There is also the fact that Noel didn’t deliver either.  Between injuries and lack of minutes, the best agent in the world  wouldn’t have gotten Noel an offer close to what Dallas offered in 2017.

-Paul’s failure to return phone calls also may have cost Noel money but this is complicated.  What if Brent Brown lied to Noel to make him feel better?  What if the offer from Philly (assuming it was real) was for less money?  How would Noel begin to prove what offers other hypothetical teams would offer?  Would deposing future prospective employers to try to prove this issue be advisable?  Probably not.  No one wants to be deposed if he can avoid it.  Moreover, these teams have no reason to give testimony adverse to Klutch and burn bridges with Paul, who still holds a stable of powerful clients.

-It’s clear Klutch did a crap job on Noel in advising him to turn down that big offer.  Their plan appears to be simple: play out all contracts to unrestricted status and see what happens.  This is a great plan for LBJ or Anthony Davis or other superstars but was a terrible plan for Noel.  The NBA landscape was changing so profoundly that a shot blocker with limited offensive game just was never going to see a $70 million deal again unless he was as effective as Rudy Gobert (or even Andre Drummond).  On top of that, Noel’s bad injury helped him morph into a bench player.  Then, OKC went into tank mode after losing their big stars (Westbrook/George) so it had no incentive to give a veteran specialist a long-term deal when they were planning to set up a tanking situation.

Noel got bad advice from Klutch and he had bad timing/luck.  It would be interesting to see what reports are in Klutch’s Noel file.  Did they do an actual analysis of Noel’s future options and his stats that showed he was a max guy?  Even a cursory look at his game and stats would indicate otherwise.  I’m glad he was able to get a decent long-term deal from the Knicks (though I remain skeptical it is going to be a good deal).  In either case, Noel wants some justice for how poorly he was treated/advised.  It doesn’t seem like a strong case on paper (unless there is some concrete evidence he has that we are not privy too) but, at the very least, he can make Klutch take some heat in the court of public opinion.