Sporting News: Realignment far from over, FSU source: If MD reduces exit fee, like "free agency"

[UConn Esq]

Maryland will argue that becoming a member of a voluntary association with bylaws does not empower the other members, over its objection, to change the bylaws to tell Maryland that it is subject to an exit fee of a previously unprecedented amount. They will go further and say "what if the bylaws were amended so only Maryland would have to pay the fee?" And they will then say and we are a branch of a sovereign state -- the threshhold for imposing fees on us without our consent should be higher than if we were a collection of for profit businesses. This is all in addition to the argument you set forth that liquidated damages, to be enforceable, can not be punitive.

Not saying who will win, but without research that is what I would argue.

I agree completely with those arguments had they made those arguments after they lost the vote instead of only raising those arguments after they themselves are being sued.

 

[businesslawyer]

I agree completely with those arguments had they made those arguments after they lost the vote instead of only raising those arguments after they themselves are being sued.

None of us know what they said to the ACC after the vote. I would be very surprised if they didn't put the ACC on notice that they didn't think the league had the power to impose that fee on them without their consent.

 

[caw]

It has only been 2 months since the vote and Maryland has been pretty clear on why they voted against it. Maybe not official notice, but...

 

[UConn Esq]

None of us know what they said to the ACC after the vote. I would be very surprised if they didn't put the ACC on notice that they didn't think the league had the power to impose that fee on them without their consent.

Again, they never took any action. Keep in mind, the ACC is suing UMD not vice versa. The ACC is the one trying to enforce the contract/bylaws, not UMD. If UMD had issues they could have raised them at the appropriate time. They didnt. Nonetheless, we both know the law isn't perfect and I'd be surprised if they made them pay the full 50.

 

[UConn Esq]

It has only been 2 months since the vote and Maryland has been pretty clear on why they voted against it. Maybe not official notice, but...

It took less than a week for the ACC to put a lawsuit against UMD together.

 

[businesslawyer]

Again, they never took any action. Keep in mind, the ACC is suing UMD not vice versa. The ACC is the one trying to enforce the contract/bylaws, not UMD. If UMD had issues they could have raised them at the appropriate time. They didnt. Nonetheless, we both know the law isn't perfect and I'd be surprised if they made them pay the full 50.

Huh? If Maryland took the position that the by law change wasn't effective against it, it had no legal obligation to immediately file a lawsuit. It was only a few months ago.

 

[nelsonmuntz]

Huh? If Maryland took the position that the by law change wasn't effective against it, it had no legal obligation to immediately file a lawsuit. It was only a few months ago.

I am with b-lawyer on this. A majority can't impose excessive fees or penalties on other shareholders just because they are the majority. And similar to an invalid non-compete, the affected party is under no obligation to immediately challenge the offending bylaw or contract. In fact, most corporate contracts, including incorporation documents, have an explicit "no waiver" section whereby each party does not waive its rights simply by failing to exercise them.

Virginia has an uphill fight. They need to make the argument that "the ACC made me vote this way". Not a great case to make.

 

[UConn Esq]

Huh? If Maryland took the position that the by law change wasn't effective against it, it had no legal obligation to immediately file a lawsuit. It was only a few months ago.

UMD can't pick and choose what bylaws count against them. Why would any of the schools vote for the 50mill if it would only apply to some of the schools. It's all or nothing. Do you think Louisville isn't consider in UNCs ACC since UNC presumably didnt vote for them to join? of course not - it's a typical corporate structure. If UMD didnt wish to honor the 50mill then of course UMD would have an immediate legal obligation to do something about it.

 

[businesslawyer]

UMD can't pick and choose what bylaws count against them. Why would any of the schools vote for the 50mill if it would only apply to some of the schools. It's all or nothing. Do you think Louisville isn't consider in UNCs ACC since UNC presumably didnt vote for them to join? of course not - it's a typical corporate structure. If UMD didnt wish to honor the 50mill then of course UMD would have an immediate legal obligation to do something about it.

We see it completely differently. I have made my point and you are free to disagree with it.

 

[noeynox]

I am with b-lawyer on this. A majority can't impose excessive fees or penalties on other shareholders just because they are the majority. And similar to an invalid non-compete, the affected party is under no obligation to immediately challenge the offending bylaw or contract. In fact, most corporate contracts, including incorporation documents, have an explicit "no waiver" section whereby each party does not waive its rights simply by failing to exercise them.

Virginia has an uphill fight. They need to make the argument that "the ACC made me vote this way". Not a great case to make.

Hell, UConn should pay Virginias 50 million, if that is what it takes for UConn to end up in the B1G with them.

 

[Danzz]

what legal basis is there for reducing the exit fee?

It called a signed contract but apparently that doesn't mean much these days.

 

[UConn Esq]

We see it completely differently. I have made my point and you are free to disagree with it.

Fair enough. ::shakes hand::

 

[uc1974]

B-L is correct on his interpretation. I especially like the argument that UMD is a state (sovereign) entity. I may be retired but I still like a good legal argument. Disclaimer: I have done no legal research on this at all and don't plan to!

 

[Jericho]

Maryland will argue that becoming a member of a voluntary association with bylaws does not empower the other members, over its objection, to change the bylaws to tell Maryland that it is subject to an exit fee of a previously unprecedented amount. They will go further and say "what if the bylaws were amended so only Maryland would have to pay the fee?" And they will then say and we are a branch of a sovereign state -- the threshhold for imposing fees on us without our consent should be higher than if we were a collection of for profit businesses. This is all in addition to the argument you set forth that liquidated damages, to be enforceable, can not be punitive.

Not saying who will win, but without research that is what I would argue.

But Nelson was talking about other schools, not Maryland. Maryland at least has a plausible argument to make since they voted against the fee. But Virginia, or anyone that's not Maryland or FSU, voted for the fee. They have a tougher argument to make. This isn't a consumer protection issue. These are sophisticated entities entering into a business deal. I don't know how Virginia can make a believeable argument that they wanted to bind themseelves and others to a $50 million exit fee and then turn around and say it really should not be enforced because I no longer like it and feel it should be illegal.

I'd also add, the idea that $50 million is "punitive" becomes less believeable the more money these schools make on athletics. It wasn't that long ago the Big 10 was distributing $10 million per school. In a few years that figure could be $40 million. In light of that info and the crazy money being paid for TV rights, it no longer seems that punitive to ask a school to pay $50 million.

 

[businesslawyer]

But Nelson was talking about other schools, not Maryland. Maryland at least has a plausible argument to make since they voted against the fee. But Virginia, or anyone that's not Maryland or FSU, voted for the fee. They have a tougher argument to make. This isn't a consumer protection issue. These are sophisticated entities entering into a business deal. I don't know how Virginia can make a believeable argument that they wanted to bind themseelves and others to a $50 million exit fee and then turn around and say it really should not be enforced because I no longer like it and feel it should be illegal.

I'd also add, the idea that $50 million is "punitive" becomes less believeable the more money these schools make on athletics. It wasn't that long ago the Big 10 was distributing $10 million per school. In a few years that figure could be $40 million. In light of that info and the crazy money being paid for TV rights, it no longer seems that punitive to ask a school to pay $50 million.

You are correct, I am talking about Maryland and FSU. If you voted for it, you still get to argue that it's punitive and thus not enforceable, but not the rest of it.

 

[HuskyHawk]

Maryland will argue that becoming a member of a voluntary association with bylaws does not empower the other members, over its objection, to change the bylaws to tell Maryland that it is subject to an exit fee of a previously unprecedented amount. They will go further and say "what if the bylaws were amended so only Maryland would have to pay the fee?" And they will then say and we are a branch of a sovereign state -- the threshhold for imposing fees on us without our consent should be higher than if we were a collection of for profit businesses. This is all in addition to the argument you set forth that liquidated damages, to be enforceable, can not be punitive.

Not saying who will win, but without research that is what I would argue.

This is close to how I am looking at it. This voluntary association put forth a unprecedented penalty for leaving the association, that was targeted at only certain members. There was not even any time period to impose it. UMD could argue that such a penalty is even more unreasonable if a reasonable time period to withdraw from the ACC was not available.

The other issue neither of you raise is antitrust. The $50M effectively acts as a perpetual restraint on the market for universities. Combined with the GORs these provisions amount to collusive behavior. It's similar to non compete clauses in employment contracts and no hire agreements between competitors.

Sent from my Nexus 7 using Tapatalk 2

 

[FfldCntyFan]

Maryland will argue that becoming a member of a voluntary association with bylaws does not empower the other members, over its objection, to change the bylaws to tell Maryland that it is subject to an exit fee of a previously unprecedented amount. They will go further and say "what if the bylaws were amended so only Maryland would have to pay the fee?" And they will then say and we are a branch of a sovereign state -- the threshhold for imposing fees on us without our consent should be higher than if we were a collection of for profit businesses. This is all in addition to the argument you set forth that liquidated damages, to be enforceable, can not be punitive.

Not saying who will win, but without research that is what I would argue.

 

[Doggie Style]

There are a few reasons. First of all, UMD is part of the ACC. The ACC runs itself like a corporation. You have a quorum, and minimum number of necessary votes, annual meetings, etc. The schools agree that all bylaws or ratifications will be met by a supermajority. In this case, the proposition to raise the amount was agreed to. UMD as a member of the ACC is forced to follow whatever the majority issues. UMD cannot just pick and choose which rules it wishes to follow, just like any stock holder who loses out on a company vote cant just still choose to disobey that law. And to a similar extent, lets say I vote for the right to bear automatic weapons and it doesn't pass.. I cant just disobey that and start carrying automatic weapons under the pretense that I voted for it, nor is how I voted evidence that I broke the law any less. Simply a rule is a rule, once it becomes a rule. If UMD doesn't like the rule then they can take LEGAL ways to get out (See: Next Paragraph):

Sure, the ACC is more of a "club" than our democratic democracy in the 'automatic-weapons' example. But, UMD then could have also made the case immediately after the increase was ratified. Maryland could have plead to a court saying i need to get out of the ACC because I can't afford this fee or for whatever reason. They could have LEGALLY tried to break their contract with the ACC. Instead, they continued accepting all the benefits of the ACC. The continued to receive ACC money and continued to brand themselves as an ACC member. They accepted the $50 million bylaw and are therefore bound by it (in an ideal world.

With that being said, this is going to court. UMD is going to argue that their contract with the ACC shouldnt be enforceable, that specific $50 million clause isnt enforceable, and the hailmary, even if it is enforceable $50 million is not reasonable. With that being said, what is their vote evidence of IN COURT. It's not evidence of anything. They tacitly accepted the new buyout, whether they agreed to it or not.

I can tell you however, from extensive experience, Courts almost always tend to favor the government, municipality, school, whathaveyou, that has to PAY the money. Courts do not like public universities wasting public funds. They tend to side with the UMDs of the world in these scenarios merely because our Courts want to save tax payer money. Even if the Courts disagree with UMD they are still likely to do something to appease ALL parties, including UMD.

Thats great information, thank you for posting that!!!

 

[businesslawyer]

True story for you FCF. In a firm meeting recently, sitting next to a partner of mine and a male, 25ish attorney just starting out. I don';t know what the lead in was, but someone led me to an obvious "Well, you can say what you want about me but I'm not going to sit here and let you badmouth the United States of America. Gentlemen." My partner laughed. The youngster looked at us like we had two heads. I asked him if he didn't remeber the scene. He told me he had never seen Animal House.

Seriously, I have less and less hope for this country's future.

 

[FfldCntyFan]

I believe that.

About five years ago I was talking with a new hire about I don't remember what and something that led to an Animal House reference came up. He said he started watching it on video once but turned it off after a couple of minutes because it looked lame. He then told me that there was no way it could have been a better movie than Old School.

The youth of today have me very concerned.

 

[nelsonmuntz]

But Nelson was talking about other schools, not Maryland. Maryland at least has a plausible argument to make since they voted against the fee. But Virginia, or anyone that's not Maryland or FSU, voted for the fee. They have a tougher argument to make. This isn't a consumer protection issue. These are sophisticated entities entering into a business deal. I don't know how Virginia can make a believeable argument that they wanted to bind themseelves and others to a $50 million exit fee and then turn around and say it really should not be enforced because I no longer like it and feel it should be illegal.

I'd also add, the idea that $50 million is "punitive" becomes less believeable the more money these schools make on athletics. It wasn't that long ago the Big 10 was distributing $10 million per school. In a few years that figure could be $40 million. In light of that info and the crazy money being paid for TV rights, it no longer seems that punitive to ask a school to pay $50 million.

I think punitive is an uphill battle too. If UVa leaves for the Big 10, the exit fee will be less than 2x their annual distribution from the Big 10, and the ACC will definitely have a case that UVa has created $50MM in present value of future damages to the league in leaving. UVa may be able to cut $5 or $10MM off. That's it.

The schools would be better off coordinating a simultaneous mass exodus of NC State, FSU, VTech, Clemson, GTech, Miami, UNC and UVa, all coordinating to vote to eliminate exit fees, then announcing their departure. That is a strategy guaranteed to get them sued, but would give them the upper hand on the contract side of the argument. There would be some case and statutory exposure in this situation, to put it mildly.

 

[IthacaMatt]

None of us know what they said to the ACC after the vote. I would be very surprised if they didn't put the ACC on notice that they didn't think the league had the power to impose that fee on them without their consent.

If the league had the power to impose ANY fee, then objecting to an increase, especially in these times when conferences need to know the other schools are acting in concert with them, is a rational thing to do and not punitive; it's about self-preservation. How many millions of dollars a year does MD get from the ACC? Around $18M or so? So we're talking about an exit fee equal to 2 1/2 times their annual revenue from the conference. It's not like there is a lack of consideration here. And as others said in this thread, if they were so offended by the exit fee, they could have withdrawn from the conference. But they didn't do that, they continued to take the conference's television money, and therefore agreed to be bound by the rules of the conference.

 

[Vuce]

Fee or not, this will not hold the ACC together in its current form. There is a LOT of smoke out there. I don't know if it will happen in the next week, month or year but other schools are leaving. This is all just paperwork. As we have seen from the Big East defections, if a school wants to leave they will leave, the money will not prevent them from doing so. What is the issue here? Whether they will pay the whole thing? OK, they will, and they are still gone and another will follow. Or it will be reduced, and another will follow. The end result is the same.

 

[CL82]

How a school actually voted, whether to increase the money or not, will not be an argument in court.

Really? There's no estoppel argument that could be made against a school that voted in favor of the damage clause?

 

[IthacaMatt]

This is close to how I am looking at it. This voluntary association put forth a unprecedented penalty for leaving the association, that was targeted at only certain members. There was not even any time period to impose it. UMD could argue that such a penalty is even more unreasonable if a reasonable time period to withdraw from the ACC was not available.

The other issue neither of you raise is antitrust. The $50M effectively acts as a perpetual restraint on the market for universities. Combined with the GORs these provisions amount to collusive behavior. It's similar to non compete clauses in employment contracts and no hire agreements between competitors.

Sent from my Nexus 7 using Tapatalk 2

1. "Unprecedented penalty" - that's pretty conclusory on your part. Others in the thread have shown that the dollars in question relate pretty fairly to the size of the payouts received from the conferences.

2. "Targeted toward certain members". I don't think I read ANYWHERE that Maryland was expected to leave. That hit most people out of the blue, despite their vote against the fee. The fee applies equally to every member, so I don't see how that argument holds any weight.

3. "Antitrust" - the Big 10's forfeiture of media rights for 25 years (or whatever it is) is much harsher than a dollar exit fee, because it ties up a college's future revenues. A voluntary association isn't collusive; they don't control a market in a meaningful antitrust sense. The market is college football, and there are many other alternatives out there apart from the ACC.

 

[tzznandrew]

I believe that.

About five years ago I was talking with a new hire about I don't remember what and something that led to an Animal House reference came up. He said he started watching it on video once but turned it off after a couple of minutes because it looked lame. He then told me that there was no way it could have been a better movie than Old School.

The youth of today have me very concerned.

If you've seen "Old School" first, it copies so many of the bits of "Animal House" that I could see it taking away some of the freshness of the original.

That said, anyone with half a brain would realize that "Animal House" came out first, and therefore is the more original and funny movie.

 

[IthacaMatt]

Really? There's no estoppel argument that could be made against a school that voted in favor of the damage clause?

Only if they withdrew immediately following the vote, and then refused to accept any more money after the vote from the conference. Otherwise how can they argue any kind of estoppel just because they were on the losing side of a vote? Show me anywhere in corporations law where the shareholder on the wrong side of a vote doesn't have to abide by the result.

 

[businesslawyer]

Only if they withdrew immediately following the vote, and then refused to accept any more money after the vote from the conference. Otherwise how can they argue any kind of estoppel just because they were on the losing side of a vote? Show me anywhere in corporations law where the shareholder on the wrong side of a vote doesn't have to abide by the result.

Matt: you think that if you own 10 shares of ATT, they can pass a by law saying if you sell the stock you owe them $1 gadzillion. And yes, I know it's not that simple, but neither is the theory you are pushing. As a matter of general contract law, liquidated damages clauses are not enforced if courts find them to be punitive. And this may be viewed as a liquidated damages clause and, if it is, the question is not how much is a school helped by being in the conference but how much is the conference harmed by the school leaving.

You really think the ACC will have an easy time showing that it suffered $50M of damages when it replaced maryland with Louisville within a week? I'm not sure they can show any damages beyond the costs of a few board meetings by conference call.

 

[uc1974]

IM, you're letting your personal feelings shape your argument. The $50 mil. will not be upheld in any form because it is punitive. $10-$20 million may not be but $50 mil. is and does not represent the "harm" caused to the ACC. That "harm" is far less than $50 mil. and is probably less than $10 mil.. Neither the ACC nor UMD will let this get to court, you know this and I know this. There will be a settlement of far less than $50 mil. and probably less than $20 mil. In fact, it may be only $10 mil.. It is interesting that the ACC now finds itself in a BE position and those who previously would have sided with BC now side with the conference involved. ACC may try to drag this out a little but that might only postpone the inevitable. The wolves smell blood and the ACC will lose more schools, sooner or later.

 

[caw]

If the league had the power to impose ANY fee, then objecting to an increase, especially in these times when conferences need to know the other schools are acting in concert with them, is a rational thing to do and not punitive; it's about self-preservation. How many millions of dollars a year does MD get from the ACC? Around $18M or so? So we're talking about an exit fee equal to 2 1/2 times their annual revenue from the conference. It's not like there is a lack of consideration here. And as others said in this thread, if they were so offended by the exit fee, they could have withdrawn from the conference. But they didn't do that, they continued to take the conference's television money, and therefore agreed to be bound by the rules of the conference.

First, the court will decide if $50 million is punitive or not. The ACC will argue it isn't. Considering Marylands athletic budget is set at $57 million, Maryland has an argument it is.

Secondly, Maryland left about 2 months after the vote. The ACC will surely argue as you have. Maryland will likely counter that they were not given enough time to exit while doing their due diligence as a public university which is beholden to the state of Maryland and said state's taxpayers. They moved as quickly as possible, with their no vote standing for their disagreement with the increase.