NCAA settlement lawyers raise alarm over claim sales and taxes

Class counsel for more than 646,000 former college athletes in the $2.8 billion NIL settlement with the NCAA said Monday they will ask an Oakland federal judge to bar class members from directing annual payments to third parties because of tax concerns.

The settlement payments will be made over the next 10 years. The attorneys warned that some class members were unknowingly selling their claims for less than their tax liability in exchange for lump sums. These direct third-party settlement payments would "make it impossible" to issue tax forms, the attorneys said.

They also want U.S. District Judge Claudia Wilken to order all third parties to fully disclose the full tax liabilities before purchasing the athletes' future claims.

Several former college athletes opposed the class counsel's initial administrative motion, which Wilken denied on Aug. 16. The athletes argued that the attorneys were trying to interfere with "their freedom to contract." They said that their contracts with buyout services were "not plaintiffs' concern" and argued that Wilken did not have jurisdiction to direct third parties' handling of contracts over the settlement fund purchases.

Lead class counsel Steve W. Berman of Hagens Berman Sobol Shapiro LLP and Jeffrey L. Kessler of Winston & Strawn LLP said in emails Monday that they will refile a standard motion soon and pushed back on the idea that the motion would prevent the athletes from selling their claims.

"We are simply trying to protect athletes from adverse tax consequences they may not be aware of. We will be refiling the motion," Berman said. In re: College Athlete NIL Litigation, 4:20-cv-03919 (N.D. Cal. filed June 15, 2020).

Keller wrote in an email Monday, "We did not seek an order to prevent class members from selling their claims. We are seeking an order to require that class members be informed of the possible tax consequences to them from selling their claims, which might be quite severe, and to give them the option to unwind their sales after they learn of those possible tax consequences. Any class member who wants to sell his or her claims is free to do so. The motion was denied on procedural grounds and will be resubmitted. It is needed to protect class member interests."

Robert Charles Ward of Shartsis Friese LLP, one of the attorneys representing five athletes who sold their settlement payouts, argued in an opposition brief filed Friday that Wilken lacks the authority to issue the notices class counsel seeks.

"The court has jurisdiction only over the parties to this case--not over all unnamed third parties that have or might someday contract with a member of the class--and cannot order nonparties to act," the brief stated. "This requested relief would unquestionably require the court to exercise jurisdiction it does not have, and for that reason should be denied. ... None of the provisions [of Rule 23(d)] permit the court to forbid members of the class from allowing their settlement payments to be made to someone else, to order third parties to issue legal warnings, to order third parties to allow their own contracts with customers to be cancelled, or to order third parties to refund money to their customers."

Wilken granted final approval of the settlement on June 6. It combined two class actions known as the "House" case, which settled for $2.57 billion, and the related "Hubbard" case which settled for $200 million.

The House case accused the NCAA of violating antitrust laws through its decades-long ban on student-athletes' receiving compensation for use of their name, image, and likeness.

The Hubbard case challenged the NCAA's cap on academic achievement awards that universities could give athletes.