Calling All Lawyers...Your Opine

[TexanMark]

http://businessofcollegesports.com/tag/conference-realignment/

Is the ACC's new exit penalty enforceable?

 

[kingottoiii]

If people are arguing that $50 million is excessive, isn't being stuck in a conference for 13 years MORE excessive? Say KU can make $10 million more in the B1G than B12. They are forced to give up $130 million > $50 million. How is that not excessive? In addition if a team wants to break the GOR how do you determine their worth and/or damages? If the B12 loses one team and replaces them with another, how are there any damages? The TV contract would remain the same. So in essence, as long as the B12 stayed together they suffer ZERO damages? In which case why couldn't a B12 school leave without penalty?

 

[Townie72]

Mark, I don't know what responses you are going to get on this.

I remember how many chimed in on the strength and merit of the Big East suit against BC and the ACC back in 2003. Everyone of them was proven wrong in the court case in which all BC had to pay was the $1M that was in the Big East contract.

OConn et al had huge legal bills from this failed attempt.

 

[xc84]

Mark, I don't know what responses you are going to get on this.

I remember how many chimed in on the strength and merit of the Big East suit against BC and the ACC back in 2003. Everyone of them was proven wrong in the court case in which all BC had to pay was the $1M that was in the Big East contract.

OConn et al had huge legal bills from this failed attempt.

Right... but wasn't there no exit fee then? I think that is why the suit was not a strong one.

 

[TexanMark]

Right... but wasn't there no exit fee then?

Pretty sure it was $1M and then BC verbally agreed in a group hug with the psycho ditched gf's to increase it to $5M after Miami and VTech bolted. Then they got invited as #12 after the 11 team ACC championship game didn't pass NCAA muster.

 

[xc84]

Pretty sure it was $1M and then BC verbally agreed in a group hug with the psycho ditched gf's to increase it to $5M after Miami and VTech bolted. Then they got invited as #12 after the 11 team ACC championship game didn't pass NCAA muster.

For what it's worth...this is a quick copy/paste from Wikipedia: " When BC accepted, they were returned to the lawsuit still pending against Miami by several Big East schools. In response, Boston College petitioned the Supreme Judicial Court of Massachusetts for a declaratory judgment to avoid paying the increased Big East "exit fee" that had been voted for but not yet amended to the Big East's constitution. Boston College won both decisions, but the Big East appealed. A secret settlement reported to be worth US$5 million was reached in May 2005, and as part of the settlement the ACC agreed to play a number of football games each year against Big East teams."

So, I think the added twists are : BC was a defendant on the orig. suit against the first defectors and that is the suit that BC was eventually a part of. This suit was started prior to the exit fee of $5M being voted on. Even after it was voted on, when BC left, the fee was not yet amended to the BE constitution (whatever that entails). I think this is much more muddled that the current situation with the exit fees.


http://en.wikipedia.org/wiki/Boston_College_Eagles#cite_note-4

 

[Crusty]

This is all going to up to the NC judge and we do not know if a homer decision is in the cards yet. We do know that the suit and the choice of laws provision in the ACC agreement is NC. NC Appeals Court and Supreme Court really suck and MD would be wise to get this moved to US District Court as soon as possible. At least then they will get out of the appellate process in NC state court system.
There really is no way of knowing how this will go until the judge decides because the judge gets to decide what is reasonable and what is not. If this was NY I would be heavily against the ACC unless they can come up with a convincing argument for damages (which they can't). Just have to hope for an NC homer, which is entirely possible.

 

[OrangeXtreme]

Pretty sure it was $1M and then BC verbally agreed in a group hug with the psycho ditched gf's to increase it to $5M after Miami and VTech bolted. Then they got invited as #12 after the 11 team ACC championship game didn't pass NCAA muster.

It was $1 mil / 1 year. At the meeting in Newark in June 2003, the FB schools verbally agreed to $5 mil / 27 months, but they never bothered to officially get the BE bylaws updated (which would have required the approval of the BB schools as well).

When BC gave notice in October 2003, the $1 mil exit fee was still on the books.

 

[Alsacs]

This is all going to up to the NC judge and we do not know if a homer decision is in the cards yet. We do know that the suit and the choice of laws provision in the ACC agreement is NC. NC Appeals Court and Supreme Court really suck and MD would be wise to get this moved to US District Court as soon as possible. At least then they will get out of the appellate process in NC state court system.
There really is no way of knowing how this will go until the judge decides because the judge gets to decide what is reasonable and what is not. If this was NY I would be heavily against the ACC unless they can come up with a convincing argument for damages (which they can't). Just have to hope for an NC homer, which is entirely possible.

It is going to end up in North Carolina Federal Court because Maryland has diversity they will likely move it from State to Federal Court. I believe the ACC screwed up royally how they did the replacement process for Maryland. Maryland is likely to argue that the liquidated damages provision in withdrawing from the conference are punitive penalties and don't reflect actual damages. If the ACC can prove the withdrawal liquidated damages provision isn't punitive then Maryland will have to the entire 52.6 million dollars. The reason why the selection of Louisville so soon was dumb is because Maryland will argue the damage wasn't excessive to the ACC and this provision is punitive. Unless we read the partnership agreement of the ACC I doubt we will ever know, and BTW do NOT LISTEN to WVU dumb fans who say this will lead to Discovery, and subject Swofford to a deposition. While this stuff is true everything in discovery will have protective orders barring their release public, and if Maryland ever leaked anything given a protective order they would GET HAMMERED BY A JUDGE. I think the ACC knows this lawsuit is too important to settle and I believe Maryland will eventually agree to an undisclosed settlement very close to the 50 million mark.

 

[Crusty]

It is going to end up in North Carolina Federal Court because Maryland has diversity they will likely move it from State to Federal Court. I believe the ACC screwed up royally how they did the replacement process for Maryland. Maryland is likely to argue that the liquidated damages provision in withdrawing from the conference are punitive penalties and don't reflect actual damages. If the ACC can prove the withdrawal liquidated damages provision isn't punitive then Maryland will have to the entire 52.6 million dollars. The reason why the selection of Louisville so soon was dumb is because Maryland will argue the damage wasn't excessive to the ACC and this provision is punitive. Unless we read the partnership agreement of the ACC I doubt we will ever know, and BTW do NOT LISTEN to WVU dumb fans who say this will lead to Discovery, and subject Swofford to a deposition. While this stuff is true everything in discovery will have protective orders barring their release public, and if Maryland ever leaked anything given a protective order they would GET HAMMERED BY A JUDGE. I think the ACC knows this lawsuit is too important to settle and I believe Maryland will eventually agree to an undisclosed settlement very close to the 50 million mark.

Agree with this entirely. MD will have a reasonable argument re actual damages or lack thereof but even in fed court they face a Greensboro judge.

 

[TheOrangeBuddha]

It is going to end up in North Carolina Federal Court because Maryland has diversity they will likely move it from State to Federal Court. I believe the ACC screwed up royally how they did the replacement process for Maryland. Maryland is likely to argue that the liquidated damages provision in withdrawing from the conference are punitive penalties and don't reflect actual damages. If the ACC can prove the withdrawal liquidated damages provision isn't punitive then Maryland will have to the entire 52.6 million dollars. The reason why the selection of Louisville so soon was dumb is because Maryland will argue the damage wasn't excessive to the ACC and this provision is punitive. Unless we read the partnership agreement of the ACC I doubt we will ever know, and BTW do NOT LISTEN to WVU dumb fans who say this will lead to Discovery, and subject Swofford to a deposition. While this stuff is true everything in discovery will have protective orders barring their release public, and if Maryland ever leaked anything given a protective order they would GET HAMMERED BY A JUDGE. I think the ACC knows this lawsuit is too important to settle and I believe Maryland will eventually agree to an undisclosed settlement very close to the 50 million mark.

That the case is going to end up in Federal Court is not absolutely certain. I haven't seen the ACC bylaws/partnership agreement/contracts etc., but it isn't uncommon for companies to agree to jurisdiction within a contract to State courts, even out of state companies. Further, not sure the determination is whether the liqudated damages provision is punitive. I believe, if the partnership agreement/bylaws were properly followed and the provision was properly passed (I do not believe it was a requirement for unanimity) then whether it is punitive is moot. I would think there would need to be some bad conduct or fraud involved for the provision to be invalid. With all that said, I do not know North Carolina law all that well - as opposed to other jurisdictions.

 

[Alsacs]

That the case is going to end up in Federal Court is not absolutely certain. I haven't seen the ACC bylaws/partnership agreement/contracts etc., but it isn't uncommon for companies to agree to jurisdiction within a contract to State courts, even out of state companies. Further, not sure the determination is whether the liqudated damages provision is punitive. I believe, if the partnership agreement/bylaws were properly followed and the provision was properly passed (I do not believe it was a requirement for unanimity) then whether it is punitive is moot. I would think there would need to be some bad conduct or fraud involved for the provision to be invalid. With all that said, I do not know North Carolina law all that well - as opposed to other jurisdictions.

I am barred in NC. Here is how an impartial NC Judge will analysis it
1. Is it a "liquidated damages" clause or a "penalty"?
In determining whether a clause is reasonable, relevant factors include:
(1) whether the parties intended to provide for damages or a penalty;
(2) whether the injury was caused by the breach or is incapable of accurate estimate at the time of contract; and
(3) whether the stipulated damages were a reasonable forecast of the harm caused by the breach.
The first factor, the subjective intent of the parties, has little bearing on whether the clause is objectively reasonable. The second factor, or the "difficulty of ascertainment test," provides that the greater the difficulty of estimating or proving damages, the more likely the stipulated damages will be reasonable. The third factor measures the reasonableness of the parties' forecast by looking at the clause from the time of contracting and the time of breach.
Rule of NC Law - A stipulation for damages upon a future breach of contract can comprise a valid liquidated damages clause if the set amount is determined to be reasonable and the damages are difficult to ascertain.
Thus the issue becomes does the ACC gain more money by ACC breaching the K? and if so is a liquidated damages clause enforceable if it gives the ACC more money than it would have earned by Maryland performing the contract. Lookng at U.C.C. § 2-718, reasonableness is the only test of the validity of a liquidated damages clause. There are three criteria to measure reasonableness: (i) anticipated or actual harm caused by breach; (ii) difficulty of proving loss; and (iii) difficulty of obtaining an adequate remedy.
Thus, truthfully I don't like the ACC chances if this goes to Court because the ACC replaced Maryland TOO DAMN FAST.

 

[orangepassion]

If Maryland doesn't pay, i hope we don't, either.

 

[Crusty]

Judges are human and often not all that impartial. You don't get appointed unless you are political and if a NC state judge you stand for election. They are also rarely the sharpest knives in the drawer.

 

[Scooch]

I like that this thread is drawing out the lawyers.

You know what the next step is...

 

[Townie72]

Right... but wasn't there no exit fee then? I think that is why the suit was not a strong one.

No. The exit fee the was $1M. And that's what BC paid ... just the exit fee BC was contracturally obligated to pay. Nothing additional.

SU is going to pay the $5 Million exit fee.

 

[IthacaMatt]

http://businessofcollegesports.com/tag/conference-realignment/

Is the ACC's new exit penalty enforceable?

I'be been debAting this point on the uconn board. You can't say that no harm occurred to the acc just because they grabbed Louisville. What price do you place on conference stability? Just look at the big east when a couple teams left they are all gone. They went from an $11m proposal from espn that they turned down. Now they'll be lucky to get half of that.

 

[JOC44]

A couple of thoughts:

1. I agree with Orange Buddha's point that if the ACC bylaws have a forum selection clause that requires suit in N.C. state court, then the case can't be removed to federal court. But I think it is highly, highly unlikely that a conference that has a minority of its members in North Carolina would include a clause that requires litigation in N.C. state court. So removal seems almost a certainty to me.

2. Don't trust anybody's opinion on the merits if they haven't seen the ACC bylaws. I do a lot of contract litigation and you'd be surprised how many lawyers don't read the contract. This is particularly true in insurance coverage litigation, where lawyers cost their clients money by assuming what the policies say rather than actually reading them.

3. I get the liquidated damages analysis, and see that doctrine as somewhat analogous, but I am not positive that it will apply. Liquidated damages clauses deal with fixing the amount of damages owed when a party breaches a contract. I'm not sure that leaving the conference is a breach of the contract, and it probably isn't as it seems likely that the ACC bylaws do allow for schools to withdraw. So I am not sure that a doctrine designed to fix the amount of damages in the event of a breach will control the enforseability of an exit fee that has nothing to do with a party actually breaching the agreement. If I am right about that, the question would be less whether the exit fee fairly approximates actual damages (because damages is a concept associated with a breach, which didn't occur) and more about whether the provision is unconscionable. The burden for proving a contract clause unconscionable is very, very high, as courts generally hold parties to their agreements. I know Maryland voted against the increase, but it did agree to abide by properly-enacted amendments to conference bylaws.

 

[xc84]

No. The exit fee the was $1M. And that's what BC paid ... just the exit fee BC was contracturally obligated to pay. Nothing additional.

SU is going to pay the $5 Million exit fee.

I was confused I guess. I misread you original quote thinking it was referring to the ACC having a weak case against Maryland to pay the exit fee...that it was not enforceable But as you said, that is what they (BC) were contractually obligated to pay. I agree, though it appears they (BC) actually paid $5M to settle.

 

[xc84]

I'be been debAting this point on the uconn board. You can't say that no harm occurred to the acc just because they grabbed Louisville. What price do you place on conference stability? Just look at the big east when a couple teams left they are all gone. They went from an $11m proposal from espn that they turned down. Now they'll be lucky to get half of that.

Why is the "harm" even a part of that? If they have to prove and value harm...and that is the basis for what is recovered, why would they bother setting up this seemingly arbitrary exit fee? If "harm" is what matters, then isn't the exit fee irrelevant? To me, it's an agreement between the schools to abide by the bylawas so that it makes it harder for teams to leave...more incentive to stay. Why can't it just be that? If I agree to work for someone and they say, "but if you leave for certain reasons, you need to give us $100,000"...and I agree to that... then if I left for those certain reasons, why would the company have to prove they were harmed $100,000? That's not what the agreement was about. It didn't say, "You will have to pay us what we were harmed"

 

[xc84]

SU is going to pay the $5 Million exit fee.

Not that it matters much, but isn't Syracuse paying more than that (so they can leave early)? If they stayed the full 27 mos., they would have had to pay $5M. They negotiated a settlement that allowed them to leave earlier at a higher cost.

 

[Moontan]

Not that it matters much, but isn't Syracuse paying more than that (so they can leave early)? If they stayed the full 27 mos., they would have had to pay $5M. They negotiated a settlement that allowed them to leave earlier at a higher cost.

Right. $5M to leave (per the BE bylaws) and $2.5M to reduce the waiting period from 27 months to 21 months.

 

[IthacaMatt]

Why is the "harm" even a part of that? If they have to prove and value harm...and that is the basis for what is recovered, why would they bother setting up this seemingly arbitrary exit fee? If "harm" is what matters, then isn't the exit fee irrelevant? To me, it's an agreement between the schools to abide by the bylawas so that it makes it harder for teams to leave...more incentive to stay. Why can't it just be that? If I agree to work for someone and they say, "but if you leave for certain reasons, you need to give us $100,000"...and I agree to that... then if I left for those certain reasons, why would the company have to prove they were harmed $100,000? That's not what the agreement was about. It didn't say, "You will have to pay us what we were harmed"

Because for it to be "liquidated damages" there have to be "damages" (a/k/a "harm"). Additionally, the extent of the damages must be hard to quantify (check), and a reasonable approximation of the harm that will result (measured against TV contracts and relative bargaining position for future contracts). Whether or not the exit fee is reasonable in light of the size of the TV contracts, and the disparity between them, is the question that will be asked of a court.

 

[xc84]

Because for it to be "liquidated damages" there have to be "damages" (a/k/a "harm"). Additionally, the extent of the damages must be hard to quantify (check), and a reasonable approximation of the harm that will result (measured against TV contracts and relative bargaining position for future contracts). Whether or not the exit fee is reasonable in light of the size of the TV contracts, and the disparity between them, is the question that will be asked of a court.

Well, if Maryland does not pay the ACC the exit fee noted in the ACC bylaws of $50M, the damages = $50M to the ACC. It's $50M that they should have received that they didn't. Maybe it is just my ignorance of the details of the lawsuit. Is the ACC asking for $50M (fee) + "liquidated damages"?