Maryland-ACC legal battle has similarities to West Virginia-Big East situation, also possibly precedent-setting differences

January 28, 2013

In October 2011, West Virginia  accepted an invitation to join the Big 12. As a preemptive strike, the university filed suit against the Big East, its home for the previous 17 years, to waive the waiting period required before fleeing. Four days later, the Big East filed a counter lawsuit in Rhode Island, the location of its headquarters, seeking to hold West Virginia to the conference’s bylaws and keep it in the fold for another two years.

So began a protracted legal battle, ultimately settling in mid-February for a reported $20 million, four times the Big East’s $5 million exit fee. West Virginia left the Big East immediately, joining the Big 12 for the 2012 football season.

Sound roughly familiar?

The University of Maryland and the ACC are currently engaged in their own dramatic match of suit-countersuit after Maryland announced in November it would leave for the Big Ten. On Nov. 27, 2012 the ACC filed suit against Maryland in a Greensboro, N.C. court, seeking payments of “three times the total operating budget of the conference,” equivalent to $52,266,342, pursuant to the conference bylaws. On behalf of Maryland, state Attorney General Douglas F. Gansler filed a countersuit Jan. 18, moving to dismiss the lawsuit and calling the exit fee an “illegal restraint of trade in violation of antitrust laws.”

The Post spoke with an individual with direct knowledge of the West Virginia-Big East legal battle, who asked to remain anonymous to retain former client confidences. The individual was asked to review Attorney General Gansler’s complaint, as well as break down the impending legal battle.

In the West Virginia situation, which the individual called “a race to the courthouse,” the fight centered on West Virginia’s claim that it couldn’t be sued in a Rhode Island courthouse because the university was “a sovereign state.” A Rhode Island judge ultimately ruled that West Virginia could be sued. The individual expects that case to be cited by the ACC, even though it was ruled under Rhode Island law.

“It’s the only case on point that deals with whether a state university could be sued,” the individual said. “Turned on whether they had sovereign immunity as a college. Trying to claim that there’s no difference between the state and the state university. Same entity. If the state has the same immunity in other state’s courts, then the university does too. [The Big East argued] that the state university was basically a public corporation. They were entering business out of the state, and could be sued like any other foreign corporation.”

When the Big East won that decision in Rhode Island, it effectively applied settlement pressure to West Virginia. The ACC wants to bring suit in North Carolina, much like the Big East did in Rhode Island. According to the individual, the ACC almost certainly will file a motion to dismiss this complaint on “interstate comity” grounds, arguing that Maryland should defer to the Greensboro court, which already is considering the dispute. The Big East was able to defeat a similar motion filed by West Virginia in the Rhode Island case.

“The facts here are a bit different, though,” the individual said. “Unlike the Big East case, where the complaints were filed the same week, the ACC filed its complaint long before Maryland filed its complaint, so there’s a possibility that the gap in time could cause the Maryland court to defer to the North Carolina court. That being said, never underestimate “home cooking” and the possibility that the Maryland court will want to retain the case. Incidentally, the Maryland court is under no obligation to defer to the North Carolina court, but it can choose to do so. That will almost certainly be among the first fights.”

The additional aspect of the Maryland-ACC case, which the West Virginia-Big East battle never reached, deals with whether such exit fees are even valid.

“There’s a body of law about restraints on trade,” the individual said. “People can generally negotiate with a former employee with a covenant not to compete. The question becomes whether a $50 million exit fee is reasonable. [The Big East was] concerned about [its] $10 million fee being reasonable. You’ll have to present documents why you’re injured so much that that amount of money is what’s needed to make you whole. If you can’t make that showing, there’s a good chance it’ll make you lose.”

The individual speculated that Maryland is “the test case” to determine whether such exit fees are legally valid, given its unprecedented nature and lack of an existing legal authority for reference. University President Wallace Loh has publicly stated his belief that the ACC’s fees was punitive and would not hold up in court. The ACC has said it intends to make Maryland pay every cent and has begun withholding conference royalties, including roughly $3 million, according to a letter sent to Athletics Director Kevin Anderson on Dec. 14, 2012.

“With respect to the four counts of [Maryland’s] complaint, the real action will turn on Maryland’s invocation of the state anti-competitive conduct statute,” the individual said. “There’s just no existing legal authority on this issue, so if this ever got to court, a ruling on this issue could have significant repercussions for the entire landscape of college athletics. That being said, and because the stakes are indeed so high, I’d be shocked if it ever got that far”

The individual anticipated that either Maryland or the ACC would file a preliminary injunction, essentially restraining the other side from continuing its course of action before the matter is solved. For the ACC, this would mean restricting Maryland from leaving to the Big Ten, a move which wouldn’t be made until 2014 anyway. For Maryland, this would keep the ACC from withholding royalties in the interim.

Either way, the individual said, a decision in Maryland’s favor would dramatically shift the realignment landscape.

“There may be negotiating behind the scenes, but it’s a really high-stakes move to litigate this issue,” the individual said. “An adverse ruling for either side really will force – if Maryland were to win it would force a radical restructuring of the way agreements between schools and their conferences are worked.

“It would seem like it would create the wild, wild, West. If the ruling went that a $50 million fee is unreasonable, but some fee is reasonable, it might not be as dramatic an effect. But in any case, if you make it a less draconian fee, schools will have a lot more flexibility to move on. Something as dramatic as a $50 million fee is shot down, it’ll lead to a lot more mobility, a lot more of the wild, wild, West and it’s going to really hamstring conferences that have put in place this kind of huge restraint on schools from moving, and you’ll see a lot more dominoes fall.”

Alex Prewitt covers the Washington Capitals. Follow him on Twitter @alex_prewitt or email him at alex.prewitt@washpost.com.
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Alex Prewitt · January 27, 2013

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