Maryland refuses to pay exit fee after leaving ACC

The University of Maryland is being sued by the Atlantic Coast Conference (ACC) in Greensboro, N.C.  On November 26^th, Maryland announced its departure from the ACC to the Big Ten in 2014-2015 school year.

Any school that leaves the ACC before their contract is executed must pay an exit fee.  This exit fee, prior to September 2012, was equal to one-and-a-quarter times the ACC’s annual operating budget.  However, in September the fee was increased to three times the annual operating budget, which put Maryland’s fee after the lawsuit at $52,266,342.

According to common law, liquidated damages can only be enforced if its purpose is to compensate the injured parties rather than punish the wrongdoer in breach.   Also, the amount of damages identified must roughly approximate the damages likely to fall upon the injured (ACC), and the damages must be sufficiently uncertain at the time the contract is made so that, if upheld, the liquidated damages clause would likely save both parties from future difficulty of estimating damages.

The ACC argues that Maryland must pay the liquidated damages for the breaching of the contract.  Maryland, who was one of two schools who voted against the exit fee increase in September, believes the fee is “invalid and unenforceable”.  The court will have to decide if the fee is excessive. If it is excessive, the result would be no penalty and an unenforceable contract.

I thought this was an interesting article because we have recently been discussing liquidated damages, along with unenforceable contracts, in class.  I especially enjoyed the article because of my passion for sports and business, and I think it’s relevant because of how many students, athletes, and faculty that will be affected by this decision. Also, it is a great example of contract law in relation to current events.    It should be an interesting case to follow in the coming weeks.

http://www.washingtontimes.com/news/2012/nov/27/acc-sues-maryland-big-ten/