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  1. #41
    Join Date
    Feb 2007
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    Steamboat Springs, CO
    Quote Originally Posted by 33laszlo99 View Post
    You use the phrase "impose a penalty". That's the troublesome part. Freedom of association allows any member of this kind of organization to leave any time they wish. It is unlawful for any person, group, government to interfere with that decision to leave the organization. Liquidated damages must not be seen as a deterrent or a punishment for a party who wishes to leave.
    Thats why MD may not want to settle the case. If a trial occurs, and discovery produces communication (emails, etc.) among conference members discuss "making them stay put" or making them "pay through the nose", then the exit fee is not valid and not enforceable. Even if the vote was unanimous, the court could declare it invalid.
    If it were a person you are right. Usually those retention agreements go in the direction of restrictions on competition (non compete clauses) to achieve the same thing. Cell phone fees are something else, I believe.

    Maryland is not a person. It is a business entity, which would make a difference to me.

    Also, I don't believe the ACC lawyers are numbskulls and drafted an unenforceable agreement, but perhaps I am mistaken.
    Sage Grouse

    ---------------------------------------
    'When I got on the bus for my first road game at Duke, I saw that every player was carrying textbooks or laptops. I coached in the SEC for 25 years, and I had never seen that before, not even once.' - David Cutcliffe to Duke alumni in Washington, DC, June 2013

  2. #42
    Quote Originally Posted by sagegrouse View Post
    If it were a person you are right. Usually those retention agreements go in the direction of restrictions on competition (non compete clauses) to achieve the same thing. Cell phone fees are something else, I believe.

    Maryland is not a person. It is a business entity, which would make a difference to me.

    Also, I don't believe the ACC lawyers are numbskulls and drafted an unenforceable agreement, but perhaps I am mistaken.
    I agree, sage one. At these meetings they all wear big boy pants. There is no contract of adhesion here. They knew the stakes and stuck around. It is a little late to want to start a new game. They made the decision to stay in and to get out. Pay the piper.

  3. #43
    Quote Originally Posted by sagegrouse View Post
    If it were a person you are right. Usually those retention agreements go in the direction of restrictions on competition (non compete clauses) to achieve the same thing. Cell phone fees are something else, I believe.

    Maryland is not a person. It is a business entity, which would make a difference to me.

    Also, I don't believe the ACC lawyers are numbskulls and drafted an unenforceable agreement, but perhaps I am mistaken.
    I'm no lawyer, and I wouldn't bet my life on my understanding of the nuts & bolts of liquidated damages. Just offering a possibility that should be considered before we start counting our chickens.
    Universities and their athletic departments sure do resemble businesses, but in fact they are non-profits. Members are not bound by contracts. They become and remain members voluntarily and withdraw without interference. The bylaws contain specific steps for orderly withdrawal, which apparently MD has followed.
    I can't cite legal pecedent, but there is tons of layman-friendly lierature about liquidated damages on the web. The $52 million exit fee is no slam dunk.

  4. #44
    Join Date
    Sep 2007
    Location
    Undisclosed
    Quote Originally Posted by 33laszlo99 View Post
    You use the phrase "impose a penalty". That's the troublesome part. Freedom of association allows any member of this kind of organization to leave any time they wish. It is unlawful for any person, group, government to interfere with that decision to leave the organization. Liquidated damages must not be seen as a deterrent or a punishment for a party who wishes to leave.
    Thats why MD may not want to settle the case. If a trial occurs, and discovery produces communication (emails, etc.) among conference members discuss "making them stay put" or making them "pay through the nose", then the exit fee is not valid and not enforceable. Even if the vote was unanimous, the court could declare it invalid.
    I do not believe that the First Amendment's prohibition against governmental laws curtailing "the right of the people peaceably to assemble" has anything to do with this. For many reasons.

    This is contract law. Contracts can have reasonable pre-estimates of damages (sometimes called a "liquidated damages clause") but they generally cannot have a punative penalty. That is an extreme generalization, mind you, but that's the issue.

    UMd presumably is a sophisticated business actor. At least the law generally presumes that in cases such as this (whether that is in fact true at Maryland is a genuine issue of disputed fact). Given that presumption, I would want to know:

    1. Did Maryland vote for the increase? They may have an estoppel problem if they did, but I seem to recall that they (and maybe FSU) voted against it.
    2. Regardless of #1 above, what facts were put forward at the time to justify $50M as a reasonable pre-estimate of damages?
    3. Did the ACC mitigate its damages by in essence finding suitable replacements?

    Interesting case that I imagine will settle before all is said and done. Too much at risk for both parties. If they need a mediator, they can shoot me a PM.

  5. #45
    Join Date
    Feb 2007
    Location
    Deeetroit City
    Quote Originally Posted by 33laszlo99 View Post
    ... Universities and their athletic departments sure do resemble businesses, but in fact they are non-profits. Members are not bound by contracts. They become and remain members voluntarily and withdraw without interference. The bylaws contain specific steps for orderly withdrawal, which apparently MD has followed. ...
    If not bound by contract, then they can't enforce the contract. The ACC is holding on to Md's "share." Md will have trouble arguing that they get the benefits of the contract without obligation.

    The liquidated damage case is interesting and complicated. Md argues that it is punitive and non proportionate to "anticipated" damages from a members departure. But Md also argues its value to the B1G and how Md has been damaged by not being able to change conferences.

    The real anticipated harm is the loss of market share in the core of the geographic region and the damage is difficult to quantify, thus a liquidated damage is appropriate. Is the amount outrageous? Md's own claims for damages suggest no.

    Adding Syracuse, Pitt, ND, and Louisville does not really "compensate" for the loss of one of the existing members,

  6. #46
    Quote Originally Posted by 33laszlo99 View Post
    Members are not bound by contracts.
    Not sure where you got that idea, but it couldn't be more wrong.

  7. #47
    Join Date
    Sep 2007
    Location
    Undisclosed
    Quote Originally Posted by burnspbesq View Post
    Not sure where you got that idea, but it couldn't be more wrong.
    To take it one step farther:

    Membership IS a contract.

  8. #48
    Join Date
    Jan 2009
    Location
    Halifax, Nova Scotia
    I guess Maryland could make the argument that its departure has been a benefit to the conference and the ACC owes it for that.

  9. #49
    Join Date
    Nov 2007
    Location
    Raleigh, NC
    Quote Originally Posted by NSDukeFan View Post
    I guess Maryland could make the argument that its departure has been a benefit to the conference and the ACC owes it for that.
    If you told me 5 years ago we could pay to have Maryland leave the conference I would have thrown a parade. That said, I would much rather they pay us and although I have no real knowledge or insight as to the legal voodoo going on here I think they will end up paying if not the full amount at least a large percentage of it. It seems like a huge number but think about how many tv viewers could theoretically be tied to their location. It also could be said to hurt members future recruiting in Maryland's geographic area. So on and so forth.

  10. #50
    Quote Originally Posted by BD80 View Post
    If not bound by contract, then they can't enforce the contract. The ACC is holding on to Md's "share." Md will have trouble arguing that they get the benefits of the contract without obligation.

    The liquidated damage case is interesting and complicated. Md argues that it is punitive and non proportionate to "anticipated" damages from a members departure. But Md also argues its value to the B1G and how Md has been damaged by not being able to change conferences.

    The real anticipated harm is the loss of market share in the core of the geographic region and the damage is difficult to quantify, thus a liquidated damage is appropriate. Is the amount outrageous? Md's own claims for damages suggest no.

    Adding Syracuse, Pitt, ND, and Louisville does not really "compensate" for the loss of one of the existing members,
    The yes/no vote of MD is irrelevant. If you and I made a bet on the Superbowl, and even went so far as to make a written contract, neither of us could enforce the contract in court because it involves illegal activity. That's what MD is claiming: When the conference raised the fee to $52 million, the intention was to punish Maryland for withdrawing. If (maybe a big if) MD can persuade a court of that, then the exit fee would be unenforceable.
    I read so often on these boards that MD "signed the contract" so they have to pay. I suspect that the ACC was formed with a charter and is regulated through bylaws. A contract typically specifies duration (start and end dates). Members of the conference are not commited indeinitely. They are free to leave when they want to.

  11. #51
    Quote Originally Posted by 33laszlo99 View Post
    The yes/no vote of MD is irrelevant. If you and I made a bet on the Superbowl, and even went so far as to make a written contract, neither of us could enforce the contract in court because it involves illegal activity. That's what MD is claiming: When the conference raised the fee to $52 million, the intention was to punish Maryland for withdrawing. If (maybe a big if) MD can persuade a court of that, then the exit fee would be unenforceable.
    I read so often on these boards that MD "signed the contract" so they have to pay. I suspect that the ACC was formed with a charter and is regulated through bylaws. A contract typically specifies duration (start and end dates). Members of the conference are not commited indeinitely. They are free to leave when they want to.
    By the same logic, if you join an association you agree to abide by its charter and bylaws. When they change the charter and/or bylaws you have the option to withdraw and not be bound by the changes you consider onerous. If you choose to stay around you implicitly agree to the changes whether you voted for them or not. Kind of a laches argument.

  12. #52
    Join Date
    Sep 2007
    Location
    Undisclosed
    Quote Originally Posted by Indoor66 View Post
    By the same logic, if you join an association you agree to abide by its charter and bylaws. When they change the charter and/or bylaws you have the option to withdraw and not be bound by the changes you consider onerous. If you choose to stay around you implicitly agree to the changes whether you voted for them or not. Kind of a laches argument.
    Exactly, I think it could go to a waiver/estoppel/laches argument. But I seem to recall that Md voted against it, no?

    33 is correct that an illegal contract is void. But this is not a clear issue like a contract for gambling, prostitution or selling prohibited substances. This is a judgment call. And it would be harder for Md to argue that this is something different than a reasonable pre-estimate of damages if they voted for the fee at the time.

  13. #53
    Join Date
    Feb 2007
    Location
    Washington, DC area
    Quote Originally Posted by OldPhiKap View Post
    Exactly, I think it could go to a waiver/estoppel/laches argument. But I seem to recall that Md voted against it, no?

    33 is correct that an illegal contract is void. But this is not a clear issue like a contract for gambling, prostitution or selling prohibited substances. This is a judgment call. And it would be harder for Md to argue that this is something different than a reasonable pre-estimate of damages if they voted for the fee at the time.
    I seem to recall Md and FSU were the only two votes against the increased fee. They both probably had a foot out the door, but only Md stepped through. Perhaps Florida blocked FSU.

    FSU eventually went all in for the ACC with the media rights thingy.

    -jk

  14. #54
    Quote Originally Posted by OldPhiKap View Post
    Exactly, I think it could go to a waiver/estoppel/laches argument. But I seem to recall that Md voted against it, no?

    33 is correct that an illegal contract is void. But this is not a clear issue like a contract for gambling, prostitution or selling prohibited substances. This is a judgment call. And it would be harder for Md to argue that this is something different than a reasonable pre-estimate of damages if they voted for the fee at the time.
    I believe they voted against the fee. That said, if they had issues with the decision they could have withdrawn at that time. They chose to live with the benefit of the fee (protection of the conference membership integrity) and to accept the payouts that came from conferenced membership. Only after they chose to withdraw did they find that decision so onerous that they should not have to pay it. But then, up there in MD country, they always did like it both ways.

  15. #55
    Quote Originally Posted by OldPhiKap View Post
    Exactly, I think it could go to a waiver/estoppel/laches argument. But I seem to recall that Md voted against it, no?

    33 is correct that an illegal contract is void. But this is not a clear issue like a contract for gambling, prostitution or selling prohibited substances. This is a judgment call. And it would be harder for Md to argue that this is something different than a reasonable pre-estimate of damages if they voted for the fee at the time.
    Maryland announced its intention to leave the ACC about a year after the exit fee was raised. That's not an especially long time as far as such things go.

    "Exit fees" that are as large as this are VERY dodgy, legally. $50M is a crazy amount of money. The conference schools knew when it was agreed to that it might not be enforceable, as did most outsiders. The point of raising the fee was to show solidarity at a time when the league appeared unstable. There is just no way that Maryland leaving the ACC is going to "damage" the remaining members by $50M. It's a penalty, pure and simple, and that's a problem legally.

    Which isn't to say that UMd doesn't owe the league *anything* - but the amount is likely a lot less than $50M.

  16. #56
    Join Date
    Feb 2013
    Location
    Las Vegas, Nevada
    Let's be clear: The exit fee is not $50 million. It's 3 years worth of conference distributions. As of today, that's about $50 million for Maryland.

    I mention that only because $50 million sounds like a round arbitrary number that would easily be characterized as a penalty. But I think the principle for the ACC is this: If you've been benefiting from being in the league, and we've made future plans and financial deals around your participation, you can't take all the bennies then walk away with them, leaving us holding the bag. So if you want to go, go. But you have to cough up three years' worth of financial bennies.

    Before the adoption of the "3 years" exit fee, the fee was $20 million, and Maryland signed on to that. So they can't plausibly claim they owe less than $20 million. Their argument can only be that the "3 years" exit fee is exorbitant in some legally cognizable way that the $20 million is not.

    But let's remember: Maryland also signed up for a process by which the exit fee could be changed without a unanimous vote. That happened. So I'm not sure the question is whether an "agreement" to pay the 3 year fee is somehow unconscionable or punitive. Rather, I think the question is whether Maryland's agreement by which the exit fee could be changed over Maryland's objection is unenforceable.

  17. #57
    Join Date
    Feb 2010
    Location
    Colorado
    Quote Originally Posted by OldPhiKap View Post
    Exactly, I think it could go to a waiver/estoppel/laches argument. But I seem to recall that Md voted against it, no?

    33 is correct that an illegal contract is void. But this is not a clear issue like a contract for gambling, prostitution or selling prohibited substances. This is a judgment call. And it would be harder for Md to argue that this is something different than a reasonable pre-estimate of damages if they voted for the fee at the time.
    Not my specialty, but how could this be an illegal contract?

    Isn't it a matter of whether Maryland has a valid affirmative defense to the liquidated damage clause? My limited exposure to this area makes me think that Maryland has the burden of proving that, at the time of execution of the agreement, the agreed liquidated damages were out of proportion to any possible loss.

  18. #58
    Quote Originally Posted by Henderson View Post
    Let's be clear: The exit fee is not $50 million. It's 3 years worth of conference distributions. As of today, that's about $50 million for Maryland.

    I mention that only because $50 million sounds like a round arbitrary number that would easily be characterized as a penalty. But I think the principle for the ACC is this: If you've been benefiting from being in the league, and we've made future plans and financial deals around your participation, you can't take all the bennies then walk away with them, leaving us holding the bag. So if you want to go, go. But you have to cough up three years' worth of financial bennies.

    Before the adoption of the "3 years" exit fee, the fee was $20 million, and Maryland signed on to that. So they can't plausibly claim they owe less than $20 million. Their argument can only be that the "3 years" exit fee is exorbitant in some legally cognizable way that the $20 million is not.

    But let's remember: Maryland also signed up for a process by which the exit fee could be changed without a unanimous vote. That happened. So I'm not sure the question is whether an "agreement" to pay the 3 year fee is somehow unconscionable or punitive. Rather, I think the question is whether Maryland's agreement by which the exit fee could be changed over Maryland's objection is unenforceable.
    The exit fee was set at 3X the annual operating budget of the conference, not the payout. That is arbitrary, as are all liquidated damamges. They are always guesswork. But they must be reasonable.

    The formal notice of withdrawal was a year after the increase, but the public announcement occurred in Nov. 2012. The fee was raised in Sep. 2012. MD is going to claim that when the ACC got wind of their talks with the B1G, the conference made a mad dash to bump-up the fee prior to any move by MD.

  19. #59

    Question

    Now that this thread has been revived, I have a question for lawyers on the board who litigate on the civil side of things. Why does UM not have this case removed to federal court? UM lost the race to the courthouse. The ACC filed first in North Carolina. UM tried to have a Maryland court seize control by suing the ACC there, but that suit was dismissed. So why does UM not do the next best thing and have the ACC’s suit removed for to Federal court under diversity jurisdiction? Diversity jurisdiction exists to protect out of state litigants from the presumed partiality of local judges. Furthermore, the tradition of the Fourth Circuit is to put at least one judge from the state whose law is being applied on the panel. Because UM attached Maryland antitrust law claims in its countersuit, UM would be guaranteed to have one Maryland judge on the panel (along with a North Carolina one) on appeal.

    Speaking of Maryland antitrust law, I was intrigued by the possible rationale for UM relying on state rather than federal antitrust claims. Part of the answer seems to be its inexplicable allergy to federal court. (Any federal claim would trigger removal of the case to federal court as a federal question with ancillary state law claims.) However, I am concerned about what would happen if a question of Maryland law arose such that a certified question of law had to be made to the Maryland Court of Appeals. Most of the judges of that court understand their job as reaching the “right” outcome or helping government officials do whatever they want and they will make the law fit the facts to do so.

    What impresses me is that both sides are committed to an all or nothing strategy. Neither seems to want to settle. If the exit fee is found to be an illegal penalty clause, the Court will simply cross it out. There is no blue pencil. The Court will not rewrite the provision to say $20M or whatever the Court would find reasonable.

    I believe that a good argument can be made that the exit fee is reasonable as liquidated damages. The survival of the ACC was at stake and no one knew the ultimate outcome of the game of musical chairs the Big Ten itself set in motion and which lead to the destruction of the Big East. For years, we have been subject to rumors about the SEC and Big Ten poaching our most attractive schools. And the Big Ten actually did that to us (although UM’s athletic program was attractive as a tear down so that it could get the land underneath). We actually may have come out ahead by swapping them for Louisville, but that outcome was not certain. Liquidated damages do not have to be accurate in hindsight and can even reflect the worst case scenario. Three years revenue or $52M does seem on the high side. However, the exit fee as liquidated damages was meant to take into account the potential damage to the conference from the most attractive members of the conference leaving, e.g., Florida State, not UM. Even without a replacement such as Louisville, is UM worth $52M to the ACC? Maybe not, but no one had them in mind when the ACC upped the exit fee. The damage if Florida State left for the SEC would be much more significant and could have actually triggered the death spiral of the conference a la the Big East. That is the yardstick that should be applied. UM’s leaving the conference was something no one (other than UM) foresaw and was the result of the unlikely combination of its need for a quick fix for the ridiculous financial problems it created for itself and a Rust Belt based conference’s need for lebensraum. UM’s move supposedly took the ACC completely by surprise and did everything it could to keep it a secret so it would be hard for it to argue that the exit fee was directed at it.

  20. #60
    Join Date
    Sep 2007
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    Undisclosed
    ^^^^ excellent post.

    Did not realize that this was notin federal court. Very odd. I cannot imagine that anyone other than Traingle schools would agree to a forum selection clause that would waive federal court removal.

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