ACC vs. Maryland: And some reasons expectation is a win

[arbitragegls]

Below is the link to the lawsuit...note that the President of the Univ of Maryland may have provided significant clout to the ACC case as noted:

• The members of the ACC are bound by the vote of the Council of Presidents...
  Specifically, defendant Maryland has agreed to be bound by votes taken by the Council of Presidents.​
  The lawsuit also states that:
• Dr. Loh, acting as the agent and representative of defendant Maryland,voluntarily consented to and participated in, without objection, in the discussion and vote by and among the Council of Presidents during the Sept. 11-12 [2012] meeting concerning the immediate establishment of the withdrawal payment at 3X the annual operating budget of the ACC (although defendant did not vote in favor).
• The Council of Presidents previously had addressed the issue of a withdrawal payment on Sept. 13-14, 2011. Following discussion at that meeting of potential harm resulting from withdrawal, the Council of Presidents adopted a proposal by Dr. Loh at that meeting to establish the withdrawal payment at 1.25X the total operating budget of the ACC. The Council of Presidents unanimously voted on Sept. 13, 2011 to amend the Constitution to establish the withdrawal at the amount proposed in discussion by Dr. Loh. Not only was this Dr. Loh's idea, but he voted for the original formula of 1.25X the operating budget during the Sept. 2011 meeting.
• Following the Sept. 2011 vote, the potential harm to ACC member institutions in the event of withdrawal of one or more members of the Conference substantially increased. The Sept. 11, 2012 amendment to the Constitution increasing the withdrawal payment to 3X the annual operating budget of the ACC resulted from further assessment of the potential harm for Conference members in the event of withdrawal

Above is a basis for recouping minimally 1.25X operating budget...that would be $21,250,000


Now why should it increase to the 3X mentioned in last bullet point above:

• The ACC media rights payment per team had gone from $13 million to over $17 million per year.
• The new college football playoffs had been approved, guaranteeing a huge payout to all members of the ACC as long as the conference remains viable as a "power conference".
• Notre Dame joined the ACC on the same day that the exit fee was increased--and Notre Dame also agreed to the fee--; obviously that changed the potential harm if the ACC were to dissolve.

I believe that the compensation for University of Maryland to leave will be over the $21,250,000 and closer to the $50,000,000+ as the case is heard and determination made in the state of North Carolina...which happens to have been agreed to by all universities of the ACC. The fact that all universities in the ACC and their presidents agreed to "live" up to the by-laws of the ACC also weighs heavily on the final decision.
Obviously all contacts are negotiable; however, strength of by-laws as well as state that makes the decision leads me to believe...ACC wins. Only question is how much more than $21,250,000 will be determined by either court decision or negotiation.
http://apps.washingtonpost.com/g/documents/sports/acc-vs-university-of-maryland-college-park/154/

 

[OrangePA]

The question though is whether the $50 million figure accurately calculates the damage that the ACC will suffer with the loss of a member institution.

Yes, the landscape changed from the September meeting during which the 1.25x formula was approved to the meeting where the 3x formula was approved.

But did the potential damages more than double because of those changes?

I guess that's the question.

The ACC has mitigated its damages with the addition of Louisville and apparently be withholding royalties to MD.

Can the ACC go on and prove the $50 million in damages - that's the question

 

[HtownOrange]

The question though is whether the $50 million figure accurately calculates the damage that the ACC will suffer with the loss of a member institution.

Yes, the landscape changed from the September meeting during which the 1.25x formula was approved to the meeting where the 3x formula was approved.

But did the potential damages more than double because of those changes?

I guess that's the question.

The ACC has mitigated its damages with the addition of Louisville and apparently be withholding royalties to MD.

Can the ACC go on and prove the $50 million in damages - that's the question

The purpose of the liquidated damages clause is to forgo a court's analysis of the exact damages created by a breach. The liquidated damages clause is set by the parties at a value they agree upon. Courts assume the agreed upon fee is reasonable as long as it is easy to determine the damages and the breaching party MUST prove it was not, in this case Maryland has the burden of proof.

Maryland takes the position they did not agree upon it, but they did agree to abide by the decisions of the collective presidents regarding the conference, so this is a snag in their argument, as Arb's posting points out. Also, Maryland should have protested the vote and issued a formal warning at the time of the vote or immediately thereafter that they reserved their right to withdraw under the old clause, or something or anything of that nature to indicate they did not and would not abide by the new 3X damages clause.

In contrast, the liquidated damages clause serves as proof of damages. The ACC has no burden to prove damages, the 3X operating budget is what the ACC has already agreed the damages would be.

Maryland's best argument is that 3X is excessive. Maryland would have to an unfair negotiation, or duress, or some other issue to prove the fee is generally excessive to each school or that they were forced into the decision. The sticking point goes back to their voluntarily agreeing to abide by the decisions of the collective presidents and not making any form of protest prior to or following the vote to increase the fee.

However, WVU paid 4X the Big East exit fee, Syracuse and Pitt paid 2X, Rutgers and Louisville are expected to pay about 2X the exit fee. Each school received an additional benefit of leaving the conference early, but each also serves as proof that exit fees are legitimate. Add to that the Big 12 schools leaving and the exit fee argument is strengthened - the Big12 schools were able to negotiate down as the exit fee was NOT clearly stated nor was it easily measurable, neither of which is a factor with the ACC exit fee.

It will be interesting to watch this develop.

 

[OrangePA]

The purpose of the liquidated damages clause is to forgo a court's analysis of the exact damages created by a breach. The liquidated damages clause is set by the parties at a value they agree upon. Courts assume the agreed upon fee is reasonable as long as it is easy to determine the damages and the breaching party MUST prove it was not, in this case Maryland has the burden of proof.

Maryland takes the position they did not agree upon it, but they did agree to abide by the decisions of the collective presidents regarding the conference, so this is a snag in their argument, as Arb's posting points out. Also, Maryland should have protested the vote and issued a formal warning at the time of the vote or immediately thereafter that they reserved their right to withdraw under the old clause, or something or anything of that nature to indicate they did not and would not abide by the new 3X damages clause.

In contrast, the liquidated damages clause serves as proof of damages. The ACC has no burden to prove damages, the 3X operating budget is what the ACC has already agreed the damages would be.

Maryland's best argument is that 3X is excessive. Maryland would have to an unfair negotiation, or duress, or some other issue to prove the fee is generally excessive to each school or that they were forced into the decision. The sticking point goes back to their voluntarily agreeing to abide by the decisions of the collective presidents and not making any form of protest prior to or following the vote to increase the fee.

However, WVU paid 4X the Big East exit fee, Syracuse and Pitt paid 2X, Rutgers and Louisville are expected to pay about 2X the exit fee. Each school received an additional benefit of leaving the conference early, but each also serves as proof that exit fees are legitimate. Add to that the Big 12 schools leaving and the exit fee argument is strengthened - the Big12 schools were able to negotiate down as the exit fee was NOT clearly stated nor was it easily measurable, neither of which is a factor with the ACC exit fee.

It will be interesting to watch this develop.

Yes, I am not a commercial attorney so I have never dealt with the issue before. My best friend handles these matters - he has explained that there must be a correlation between the exit fee and the damages - that the fee cannot be a punitive device.

It makes sense that MD would bear the burden of proof. But whenever my opponent has the burden I make darn sure that my client can prove otherwise - I presume that my client has the burden.

I wonder how much an "agreement" to the terms by the departing party matters in this kind of situation.

The school can argue that it really had no choice and as noted, MD did challenge the amount of the fee at some point.

So, again, I'm not sure how much MD's supposed "agreement" means under the circumstances.

I guess I think it will be a hard fought process.

 

[Crusty]

I have never had a liquidated damages clause upheld - never. Judges consider them penalties and simply ignore them. Go figure.

 

[Cheriehoop]

I'm not a lawyer but isn't the very nature of exit fees to be punitive? Wasn't the goal of conference exit fees to make it monetarily punitive to discourage a member from leaving
to preserve the conference? Otherwise wouldn't individual members not agree to the one fits all exit fees but have them tailored individually based on their value or monetary worth to the conference?

 

[Crusty]

I'm not a lawyer but isn't the very nature of exit fees to be punitive? Wasn't the goal of conference exit fees to make it monetarily punitive to discourage a member from leaving
to preserve the conference? Otherwise wouldn't individual members not agree to the one fits all exit fees but have them tailored individually based on their value or monetary worth to the conference?

No, liquidated damages are to determine damages where damages are difficult to determine at the time the contract is written.

 

[HtownOrange]

Yes, I am not a commercial attorney so I have never dealt with the issue before. My best friend handles these matters - he has explained that there must be a correlation between the exit fee and the damages - that the fee cannot be a punitive device.

It makes sense that MD would bear the burden of proof. But whenever my opponent has the burden I make darn sure that my client can prove otherwise - I presume that my client has the burden.

I wonder how much an "agreement" to the terms by the departing party matters in this kind of situation.

The school can argue that it really had no choice and as noted, MD did challenge the amount of the fee at some point.

So, again, I'm not sure how much MD's supposed "agreement" means under the circumstances.

I guess I think it will be a hard fought process.

I agree with treating your client like they have the burden of proof. And I agree that Maryland can argue they had no choice. However, the ACC will presumably demand production of all communications between Maryland (inclusive of all staffers, boosters and others with ties to Maryland) and any party that represents the B1G and any member schools. If Maryland had no communications - including overtures prior to the ACC increase of the exit fee, then Maryland has a stronger case. If there was any communication between the B1G and Maryland prior to the vote, then I presume the ACC will argue that Maryland was double dealing in their own self interest and by not disclosing to or withdrawing from the ACC, Maryland, by default, has agreed to the exit fee.

I still believe that the schools will negotiate something between the prior agreed amount and the 3X as Arb indicated, closer to the high end, but that is my opinion. Neither side wants to leave too much money on the table and gamble for a make or break lawsuit where you win or lose according to the jury.

 

[HtownOrange]

I have never had a liquidated damages clause upheld - never. Judges consider them penalties and simply ignore them. Go figure.

Often the liquidated damages clauses in business are forced from a party having an upper hand. However, when the damages are simply defined, they are usually upheld. As I stated, the Big 12 exit fees failed due to the complexity of the exit fee calculations.

Most clients that have fairly agreed to damages clauses simply pay the fee as an efficient breach, or simply a cost of breaking the agreement. If there is one side that forced the setting of the damages clause, then you have a new argument.

I am limiting the issue to the damages. If other issues complicate the matter, i.e. no-compete clause, then all bets are off. I've beaten damages clauses via other issues related to the same case. At this point, I have not seen anything to support Maryland's claims. I am open to anyone with with support either way.

Your comment about the damages clause could be considered a penalty, depending on jurisdiction. However, I suspect the issue will be heard in NC which offers the ACC a natural benefit.

 

[TampaLaker]

I am definitely not a lawyer, but could the ACC not argue that the inherent value of the conference has been damaged by Maryland leaving. Maryland was one of the longest running members of the conference. By jumping to another conference, Maryland has brought a "goodwill" loss to the conference. That damage could not be easily quantified. While the addition of Louisville may mitigate the immediate damage, Maryland's choice to leave has brought a question on the league as to it's long-term stability in comparison to what it was just a few years ago. That seems like a legitimate "goodwill" damage...

 

[44PRIDE]

Question: Any chance Maryland returns to the ACC at this point? Team #16?

 

[HtownOrange]

I am definitely not a lawyer, but could the ACC not argue that the inherent value of the conference has been damaged by Maryland leaving. Maryland was one of the longest running members of the conference. By jumping to another conference, Maryland has brought a "goodwill" loss to the conference. That damage could not be easily quantified. While the addition of Louisville may mitigate the immediate damage, Maryland's choice to leave has brought a question on the league as to it's long-term stability in comparison to what it was just a few years ago. That seems like a legitimate "goodwill" damage...

The ACC could argue as you state, but there is not a need to do so, at least as long as the exit fee/liquidated damages clause is still in play. The purpose of the damages clause is just as Crusty perfectly stated above,

"liquidated damages are to determine damages where damages are difficult to determine at the time the contract is written"

When both sides mutually agree to liquidated damages, both are agreeing that there exists no need to calculate actual damages via list revenue/good will/injury/etc. and each will simply take the liquidated damages in place of such legal wrangling (read, court expense and risk) to calculate the losses.

If there was no exit fee/liquidated damages clause, the ACC would definitely have to make every argument as you state and Louisville would be brought in as a mitigating factor, which may be Maryland's best hope because Louisville generates more money.

 

[OrangePA]

I agree with treating your client like they have the burden of proof. And I agree that Maryland can argue they had no choice. However, the ACC will presumably demand production of all communications between Maryland (inclusive of all staffers, boosters and others with ties to Maryland) and any party that represents the B1G and any member schools. If Maryland had no communications - including overtures prior to the ACC increase of the exit fee, then Maryland has a stronger case. If there was any communication between the B1G and Maryland prior to the vote, then I presume the ACC will argue that Maryland was double dealing in their own self interest and by not disclosing to or withdrawing from the ACC, Maryland, by default, has agreed to the exit fee.

I still believe that the schools will negotiate something between the prior agreed amount and the 3X as Arb indicated, closer to the high end, but that is my opinion. Neither side wants to leave too much money on the table and gamble for a make or break lawsuit where you win or lose according to the jury.

But the ACC needs a win - however you wish to characterize it - to preserve its withdrawal structure - and the league.

 

[OrangePA]

Often the liquidated damages clauses in business are forced from a party having an upper hand. However, when the damages are simply defined, they are usually upheld. As I stated, the Big 12 exit fees failed due to the complexity of the exit fee calculations.

Most clients that have fairly agreed to damages clauses simply pay the fee as an efficient breach, or simply a cost of breaking the agreement. If there is one side that forced the setting of the damages clause, then you have a new argument.

I am limiting the issue to the damages. If other issues complicate the matter, i.e. no-compete clause, then all bets are off. I've beaten damages clauses via other issues related to the same case. At this point, I have not seen anything to support Maryland's claims. I am open to anyone with with support either way.

Your comment about the damages clause could be considered a penalty, depending on jurisdiction. However, I suspect the issue will be heard in NC which offers the ACC a natural benefit.

I hope you're right of course.

I think it's crucial that the exit fee be upheld.

 

[kingtidge]

The liquidated damages do carry a burden of proof. That burden is real, tangible loss of revenue for the conference from the member institution leaving.

The ACC will need to show fiscally that the exit fee is determined from projected lost revenue from annual $$ Maryland generated for the conference based on past financials (not some smoke and mirrors projected big revenue windfall based on future events).

If that amount does not equal the 3X fee, it's excessive an punitive.

I think the problem the ACC has is they really jacked the exit fees in the last year to the excessive/punitive level... and judges do not like that.

 

[HtownOrange]

But the ACC needs a win - however you wish to characterize it - to preserve its withdrawal structure - and the league.

I think that is why the ACC will negotiate an exit fee, north of 2X, but giving Maryland a little break from the 3X. A negotiated settlement is a win and other schools would have to follow that lead. It may not be the full 3X, but if a court rules as Maryland wishes, the ACC could be stuck with nothing or no more than 1.25X that Maryland did vote for.

A loss is more damaging that a negotiated settlement because that would be an even lower threshold for future teams to leave.

One thing to remember is that the SEC and B1G don't have exit fees. They don't need them because no one wants to leave. The ACC needs to work to develop that camaraderie so that no one wants to leave. Obviously the TV payouts are an issue, but FSU and Clemson stayed because gaining a few $MM was simply not worth the losses/heartache they would endure.

Maryland left because they screwed up their Athletics department. The last AD, Loh - I think, did a great job of reducing their debt from $50MM to $5MM, but that was not good enough. They need cash, money talks. The ACC is still resolving the money issues and Maryland left for greener grasses. I am not convinced that the B1G fan base stays proportionately the same size in 20-30 years due to populations shifts and economic shifts. I think Maryland was short sighted.

 

[OrangePA]

The liquidated damages do carry a burden of proof. That burden is real, tangible loss of revenue for the conference from the member institution leaving.

The ACC will need to show fiscally that the exit fee is determined from projected lost revenue from annual $$ Maryland generated for the conference based on past financials (not some smoke and mirrors projected big revenue windfall based on future events).

If that amount does not equal the 3X fee, it's excessive an punitive.

I think the problem the ACC has is they really jacked the exit fees in the last year to the excessive/punitive level... and judges do not like that.

This is my concern.

 

[HtownOrange]

The liquidated damages do carry a burden of proof. That burden is real, tangible loss of revenue for the conference from the member institution leaving.

The ACC will need to show fiscally that the exit fee is determnined fromprojected lost revenue from annual $$ Maryland generated for the conference based on past financials (not some smoke and mirrors projected big revenue windfall based on future events).

If that amount does not equal the 3X fee, it's excessive an punitive.

I think the problem the ACC has is they really jacked the exit fees in the last year to the excessive/punitive level... and judges do not like that.

Your point comes into play if Maryland successfully argues that the exit fee is punitive. However, if Maryland fails to prove the exit fee is not valid - that they did not agree to it or that it is punitive, the exit fee stands. Crusty's above definition is dead on. Maryland must first prove that the exit fee is invalid for one reason or another.

If Maryland is able to prove the exit fee is invalid, for whatever reason, then what you state, and what others have stated comes into play.

 

[rrlbees]

i'm not a lawyer so i don't get all the liguidated damages stuff and what not. but to me it is pretty simple. md is/was a part of the acc. with that they accepted to abide by their by laws which includes how matters are voted on. that includes the 3x proposal and voting. just because they didn't vote for it and now don't like it, to me doesn't matter. it was voted on per the acc by laws. seems simple to me. they owe ~$50M. if they didn't want to be part of the acc and follow the acc bylaws anymore, they should have dropped out before the vote and paid the exit fee in place at that time. they knew the vote was coming.

 

[Crusty]

Often the liquidated damages clauses in business are forced from a party having an upper hand. However, when the damages are simply defined, they are usually upheld. As I stated, the Big 12 exit fees failed due to the complexity of the exit fee calculations.

Most clients that have fairly agreed to damages clauses simply pay the fee as an efficient breach, or simply a cost of breaking the agreement. If there is one side that forced the setting of the damages clause, then you have a new argument.

I am limiting the issue to the damages. If other issues complicate the matter, i.e. no-compete clause, then all bets are off. I've beaten damages clauses via other issues related to the same case. At this point, I have not seen anything to support Maryland's claims. I am open to anyone with with support either way.

Your comment about the damages clause could be considered a penalty, depending on jurisdiction. However, I suspect the issue will be heard in NC which offers the ACC a natural benefit.

That is what concerns me, all my litigation was in NC. All of my attorneys have scoffed at the idea of a LD clause being enforced here. I have always been told that judges hate them and just won't uphold them. Because of that we wrote them as simply as we possibly could to no avail. Judges think they are God on earth and that they know best and damn whatever contract provisions they don't like. Sounds like a far fetched statement but it is pretty close to the mark.

Pardon me for being so jaded in my view but my experience with lawyers quoting me the law has made me understand that theory and practice in the court room are two different things. All too often. judges place greater weight on the arguments based on what decision they want to make. The argument that gives them the decision they want can get stretched to unbelievable length and the losing argument dismissed with a couple of sentences.

NC judges get paid very little - chief district judge in each county seat earns $113,000 about $4,000 more than district judges. The state's Supreme Court earn $137,000 annually, with the chief justice earning $141,000. Members of the court of appeals earn $132,000 ($135,000 for the chief judge). Needless to say, these guys are not the sharpest knives in the drawer and. since they are elected. they always have their ears real close to the ground.

I think you can count on this being a pretty political decision, which is really what the ACC has going for it rather than the actual legal argument, which could go either way. The rest is just wild legal guessing.

 

[Antiprodigy]

http://espn.go.com/college-sports/story/_/id/8858267/maryland-attorney-general-files-suit-acc

To me, this is the biggest concern for the ACC.

"The ACC has also ignored and breached the ACC Constitution in its urgency to punish Maryland and deter further withdrawals from the Conference." According to the suit, the ACC Constitution deems that amendments do not take effect until the beginning of the next fiscal year following their adoption, meaning that the exit fee could not be implemented until July 2013."

Based upon the info in the article, I could definitely see UMD on the hook for the $20 million the fee that was placed into effect after agreement in Sept. 2011. But, they may have a case for not having to pay the $52,266,342 fee, as it would not be in effect until July 2013.

It will be interesting to see the outcome. Like most, I think there will be some sort of compromise. Either way, it is likely to mean no revenue or negative revenue for UMD for a couple years, and when you are $50 million in a hole, it doesn't make things easy.

Either way, the school deserves it for taking away the close game I would have had to see the 'Cuse!

 

[kingtidge]

i'm not a lawyer so i don't get all the liguidated damages stuff and what not. but to me it is pretty simple. md is/was a part of the acc. with that they accepted to abide by their by laws which includes how matters are voted on. that includes the 3x proposal and voting. just because they didn't vote for it and now don't like it, to me doesn't matter. it was voted on per the acc by laws. seems simple to me. they owe ~$50M. if they didn't want to be part of the acc and follow the acc bylaws anymore, they should have dropped our before the vote and paid the fee in place at that time. they knew the vote was coming.

Just because the conference voted in majority to approve an exit fee for member institutions leaving does not mean the fee is neither excessive or punitive.

A judge will want to see that the fee is "reasonable" based on the annual revenue Maryland brought to the ACC.

 

[rrlbees]

Just because the conference voted in majority to approve an exit fee for member institutions leaving does not mean the fee is neither excessive or punitive.

A judge will want to see that the fee is "reasonable" based on the annual revenue Maryland brought to the ACC.

who is a judge to determine reasonable? it was reasonable to the majority. if i want to charge $100/person to come watch a game at my house, who's to say that's unreasonable. nobody has to come if they don't want to. fans should start suing for unreasonable ticket prices.

this is whats wrong with our legal system today. nobody made maryland join nor stay in the acc.

as a sidenote however, if what anti posted is true and their bylaws/constitutuion say amendments don't go into effect until a later date, then md may have a case.

 

[HtownOrange]

That is what concerns me, all my litigation was in NC. All of my attorneys have scoffed at the idea of a LD clause being enforced here. I have always been told that judges hate them and just won't uphold them. Because of that we wrote them as simply as we possibly could to no avail. Judges think they are God on earth and that they know best and damn whatever contract provisions they don't like. Sounds like a far fetched statement but it is pretty close to the mark.

Pardon me for being so jaded in my view but my experience with lawyers quoting me the law has made me understand that theory and practice in the court room are two different things. All too often. judges place greater weight on the arguments based on what decision they want to make. The argument that gives them the decision they want can get stretched to unbelievable length and the losing argument dismissed with a couple of sentences.

NC judges get paid very little - chief district judge in each county seat earns $113,000 about $4,000 more than district judges. The state's Supreme Court earn $137,000 annually, with the chief justice earning $141,000. Members of the court of appeals earn $132,000 ($135,000 for the chief judge).Needless to say, these guys are not the sharpest knives in the drawer and. since they are elected. they always have their ears real close to the ground.

I think you can count on this being a pretty political decision, which is really what the ACC has going for it rather than the actual legal argument, which could go either way. The rest is just wild legal guessing.

This is true insight. I was not aware that you were in NC. Your experience will have far more impact than general application of law (especially compared to the Houston area).

You are spot on when identifying judges having a "God" complex. Just like doctors, nobody else knows anything. Judges do make their decisions more on what they want to happen, especially at the lowest levels.

Based on what you say, I would guess the ACC is working hard to negotiate a settlement.

Any chance they remove this to federal courts? Though I think if it stays in NC, state or federal court, the political side should be in the ACC's favor.

 

[Crusty]

I imagine it will wind up in US Court in Greensboro.