Posted: November 27th, 2012 | By: David Morrison
When the ACC voted in September to immediately raise its exit fee to three times its annual operating budget – around $50 million – the move was seen as an important step in maintaining the league’s future stability, a way to prove to its schools the strength of the conference and make it more difficult to sever ties.
Maryland, which announced its intention to join the Big Ten this week, could use that very language to mount a challenge if it wants to push back against the ACC’s exit fee.
If the ACC reached its new figure through future forecasts of what losing a member school could cost, the fee is legally sound.
If Maryland can prove the exit fee is meant to be punitive against schools leaving rather than a reflection of projected loss, the school could make some ground in whittling the figure down.
“That language doesn’t help,” said Timothy Davis, a professor of sport and contract law at the Wake Forest School of Law. “That’s the type of language Maryland will likely play to to bolster its case, that the intention was not to try to come up with a reasonable estimate of what the ACC’s losses would be, but merely to try to penalize.
“That is not a function of contract damages.”
Maryland’s Wallace Loh, a former dean of the University of Washington Law School, was one of two ACC presidents to vote against the increased fee in September, telling the Washington Post at the time he disagreed with “punishing people if they simply exit a relationship.”
The school has not ruled out paying the entire exit fee but has also expressed a desire to lower it through negotiations with the league.
An ACC official said the league’s legal counsel was present at the September meeting in which it was passed and are satisfied that the new fee is “legally binding.”
“(Loh’s) going to say Maryland believes they can enter into some type of settlement, because he’s trying to state a strong negotiating position,” Davis said. “The same thing is true of the ACC. I don’t know what is going to happen. The ACC may decide it wants to make some precedent here, may want to take this all the way.
“But if you were to look at what’s happened in the past, if this were to follow the typical pattern, there will be some type of negotiation.”
Davis and UNC School of Law sports law professor Barbara Osborne both said there is no precedent of a conference and a school settling exit fee questions in court.
West Virginia, Syracuse and Pittsburgh all negotiated amounts to pay on top of the Big East’s $5 million fee for an earlier exit than the 27-month notice mandated by the league.
Missouri and Texas A&M were expected to pay an exit fee of nearly $30 million each when they left the Big 12 earlier this year, but each team ended up paying $12.41 million after negotiation.
Davis said there is a bit of history with coaches and schools going to court over “liquidated damages.”
In 2008, Rich Rodriguez and West Virginia settled for the $4 million buyout he owed the school, with his new school – Michigan – picking up $2.5 million of the tab after West Virginia filed a breach of contract motion against the coach.
In 1999, an appellate court upheld a district court finding that coach Gerry DiNardo owed his former university, Vanderbilt, nearly $300,000 after leaving before the end of his contract to take a job at LSU.
In those two cases – and in other cases from the business world – Davis said courts have been inclined to uphold “liquidated damages” provisions.
The key, Osborne said, is for the side seeking the damages to demonstrate the figure it arrived at is not arbitrary.
“You’re looking into a crystal ball. You don’t know the actual cost,” Osborne said. “The whole reason you create something like liquidated damages clauses – or exit fees – is because it’s really, really hard to measure all the intangibles that go along with a member leaving the conference. Maryland, being a long-standing and founding member, there’s goodwill that goes along with that. There’s potential loss of reputation for the conference in that one of its founding members is now leaving.
“How do you measure that in a marketplace? Those are really intangible, difficult things to measure. But do they have an impact on the value of the conference? Absolutely.”