In the Supreme Court of Ohio

Supreme Court of Ohio Clerk of Court - Filed March 27, 2015 - Case No. 2015-0347

No. 2015-0347

APPEAL FROM THE COURT OF APPEALS ELEVENTH APPELLATE DISTRICT PORTAGE COUNTY, OHIO CASE NO. 2013-P-0091

KENT STATE UNIVERSITY, Plaintiff-Appellee,

GENE A. FORD, Defendant-Appellant.

APPELLEE KENT STATE UNIVERSITY’S MEMORANDUM IN RESPONSE

William G. Chris (0006593) Susan M. Audey (0062818) Lawrence R. Bach (0021205) Benjamin C. Sassé (0072856) Rodd A. Sanders (0063835) TUCKER ELLIS LLP RODERICK LINTON BELFANCE LLP 950 Main Avenue, Suite 1100 50 S. Main Street, 10th Floor Cleveland, OH 44113-7213 Akron, OH 44308 Telephone: 216.592.5000 Telephone: 330.434.3000 Facsimile: 216.592.5009 Facsimile: 330.434.9220 [email protected] [email protected] [email protected] [email protected] [email protected] Frederick Byers (0002337) 414 N. Erie Street, 2nd Floor Attorneys for Plaintiff-Appellee Toledo, OH 43604 Kent State University Telephone: 419.241.8013 Facsimile: 419.241.4215 [email protected]

Attorneys for Defendant-Appellant Gene A. Ford TABLE OF CONTENTS

MEMORANDUM IN RESPONSE

I. EXPLANATION WHY THIS CASE PRESENTS NO PUBLIC OR GREAT INTEREST THAT WARRANTS THIS COURT’S DISCRETIONARY REVIEW 1

II. COUNTER-STATEMENT OF THE CASE AND FACTS 3

III. LAW AND ARGUMENT 6

1. Proposition of Law No. 1:

When stipulated damages are not ascertained by estimation and adjustment at the time of contracting, a liquidated-damages provision is unreasonable and unenforceable under the second prong of the Sampson Sales test if the stipulated sum is disproportionate to the actual damages sustained and/or the overall contract price.

A. Kent State’s damages exceed the out of pocket costs it incurred in selecting a replacement coach. 6

B. The central purpose of liquidated damages, after all, is to allow the parties to contract for damages in situations where damages are difficult to measure. 9

C. The increased market value of an individual in a position requiring unique skills and who is subject to a specialized personal services agreement based on that skill set is a valid damage component when the agreement is breached. 11

IV. CONCLUSION 12

I. EXPLANATION WHY THIS CASE PRESENTS NO PUBLIC OR GREAT INTEREST THAT WARRANTS THIS COURT’S DISCRETIONARY REVIEW

At the time of this appeal, Gene Ford was one of 347 National Collegiate Athletic

Association (“NCAA”) Division One Men’s Basketball Head Coaches. Only thirteen such positions exist in the State of Ohio. As a result, the precedential value of this case is for a limited audience of actors who possess unique skills pertaining to revenue generating sporting activity.

This limited class of individuals impacted by the decision are particularly well positioned to understand the terms and weigh the possible consequences of the agreements they are signing.

As was the Appellant in this case, they are usually represented by professional sports agents and attorneys.

The trial court was presented with other contracts from Ohio public university-based head coaches which contain provisions similar to Kent State’s agreement with the Appellant. In fact, the testimony of the representative from Parker Executive Search—a national firm with a practice focusing on recruiting coaches for major college athletics which, coincidentally, was hired by Bradley University as part of its effort to recruit Gene Ford—unequivocally stated that it is commonplace in this specialized field for head coaching contracts to contain provisions mandating a payment by the coach or the school for early contract termination. Thus just as

Appellant was required to pay an early termination fee, in the event that the hiring university would have terminated the coach’s position before the contract expired (without cause), the university would be required to pay the remaining balance due—or a substantial portion of it—to the terminated coach.

Moreover, the law in this field appears to be well settled. In Vanderbilt University v.

DiNardo, 174 F.3d 751 (6th Cir. 1999) the court held that an early termination fee contained in a college football coach’s contract was valid and enforceable, noting that the “fact that liquidated

1 damages declined each year DiNardo remained under contract, is directly tied to the parties’ express understanding of the importance of a long-term commitment from DiNardo.

Furthermore, the liquidated damages provision was reciprocal and the result of negotiations between two parties, each of whom was represented by counsel.” Id. This is the exact structure of the early termination fee contained in Coach Ford’s agreement. While the court in DiNardo applied the law of Tennessee regarding liquidated damages, that law is in all important respects identical to Ohio law—no Ohio court has reached a decision contrary to DiNardo. The virtual lack of contrary case law suggests that disagreements in this field are rare. In fact, the testimony established that Kent State was able to negotiate an early departure fee with each of the three prior coaches that preceded the Appellant.

While not expressly stated by the court in DiNardo, the reciprocal nature of the early termination fees allow both parties—the coach and the university—to maximize the benefit of their contractual bargain. This case does not involve fungible widgets, but rather, the unique skills of a college basketball coach. Where a defaulting employee is uniquely skilled, damages calculated merely on the difference between his pay and the pay of his replacement do not fairly cover all the loss occasioned by such a breach. Annotation, Employer's damages for breach of employment contract by employee’s terminating employment, 61 A.L.R.2d 1008.

Early termination fees—or liquidated damages—are a staple in contracts for college athletic coaches. Indeed, a judgment in the amount of nearly $2.49 million in favor of Ohio State

University’s former men’s basketball coach was affirmed by the court in O’Brien v. Ohio State

Univ., 10th Dist. Franklin No. 06AP-946, 2007-Ohio-4833, appeal not accepted, 117 Ohio St.3d

1406 based upon a liquidated damage clause contained in the coach’s contract that required the

University to make payment for the remaining three year’s salary of the coach’s contract when

2 the coach’s termination was ruled not for cause. A review of the case illustrates that it was not the early termination fee that was in dispute, but rather, whether Ohio State properly discharged the coach for cause under the contract.

The Appellant advances a position whereby college coaches, after accepting the benefit of guaranteed income that comes with a multi-year contract, will be free to leave for greener pastures at any point, and upsetting the intended program stability that lead the university to offer a multi-year guaranteed income in the first place. This Court should not reward such behavior by accepting the Appellant’s invitation.

II. COUNTER-STATEMENT OF THE CASE AND FACTS

Laing Kennedy, the former Athletic Director for Kent State University (“Kent State”), oversaw a history of program success coupled with an inability of the University to retain the head coaches for the men’s basketball team. In successive order, Gary Waters left Kent State to take the head coaching position at Rutgers University. His replacement, Stan Heath, departed for the University of Arkansas. Next, Jim Christian abandoned Kent State to coach at Texas

Christian University. All these departures occurred after the team achieved some success in the two major post season tournaments, the NCAA Men’s Basketball Championship and the

National Invitational Tournament. Each coach left Kent State before fulfilling the term of his contract, however, they honored their contractual obligations by resolving the early termination fee. In each case, Mr. Kennedy was aware that each former Kent State coach doubled or tripled his salary at the new position.

In the contract negotiations between Kent State and the Appellant, Mr. Kennedy explained the basis behind the contract that Kent State was offering and why it was willing to substantially increase his salary. The multi-year provisions allowed the coach to focus on

3 building the program without the pressure of a short term one year contract. The guaranteed income provided an opportunity to develop and maintain his roots in the community. In April,

2010, Mr. Kennedy made a point of outlining the University’s position when he offered the new agreement that contained a $100,000.00 per year raise. The new agreement made Coach Ford the highest paid men’s basketball coach in the Mid-American Conference at the time. Mr.

Kennedy testified that he told Appellant:

To completely understand this, to protect a rather significant investment that the University is making in you, and I’m very confident that you’ll be our head coach for a long time, there will be a liquidated damages that will protect you and the University. That works two ways, that if you are terminated without cause, we would, the University would pay. If you leave to take on another job, there would be that obligation [to pay the balance].

Appellant quickly agreed to the new contract’s terms but only after consulting his agent and his counsel. Kent State stressed that there would be no change in the early termination provision.

The Appellant selectively quotes a snippet of Laing Kennedy’s lengthy deposition testimony in his Memorandum. That Laing Kennedy could not make a precise “financial analysis” prior to establishing the liquidated damage clause is consistent with the difficulty facing any athletic director in this situation—there are too many variables to make such a calculation with any degree of specificity. Nevertheless, Mr. Kennedy outlined the exact type of damages the university would incur if the coach left early, including, and most importantly, the cost of hiring a replacement coach of the same caliber as the departing coach. In this case, Kent

State lost a coach whose market value at the time of his departure had increased by at least $1.6 million. Although Laing Kennedy could not have known precisely how the market would change after April, 2010, he had enough experience with the prior three coaches that it was unlikely that Appellant would voluntarily leave the university unless his market value substantially increased.

Ford was so untroubled by the early termination fee in his contract with Kent State that he signed a long term contract with Bradley University that contained a similar early termination fee. Ford never disclosed to Kent State when he left that as part of his contract with Bradley

University, Bradley University committed to paying Four Hundred Thousand Dollars

($400,000.00) of Ford’s obligation to Kent State as an inducement for him to breach his contract.

It is of no small significance that Lang Kennedy’s deposition was taken on October 6,

2011, just seven months after the breach. The full extent of Kent State’s damages were not complete. It is a historical fact that the Kent State men’s basketball team has not had any major post season tournament appearances, much less success, since Coach Ford breached his contract—a contract whose term runs through March 31, 2015. This history was naturally unavailable to the trial court.

In his statement of the facts, Appellant improperly suggests that Kent State refused to negotiate a settlement of the early termination fee with him; all negotiations were conducted by counsel for Kent State University and Gene Ford’s agent. Bradley University never offered to pay Kent State the $400,000.00 obligation that it agreed to in its contract with Ford. Further, the assertion that Kent State only sustained a minimal loss in replacing Coach Ford is disingenuous and directly contrary to the determination in the majority opinion which was reiterated in the

Court’s Order rejecting Appellant’s attempt to Certify a Conflict:

Regardless, the market value of Ford’s services, which increased over the course of the contract, as was shown by his ability to more than double his yearly salary when hired by Bradley University, was immediately lost when he left Kent State and factored into the overall actual loss suffered.

Kent State University v. Gene A. Ford, 11th Dist. Portage No. 2013-P-0091 (March 24, 2015).

The decision is attached to the Appellant’s Notice that the Eleventh District Court rejected his

Motion to Certify a Conflict filed in this Court on March 25, 2015.

III. LAW AND ARGUMENT

1. Proposition of Law No. 1:

Kent State recognizes, as did the lower courts, that Ohio law relating to a contractual liquidated damage clause was set forth in this Court’s decision in Samson Sales, Inc. v.

Honeywell, Inc., 12 Ohio St.3d 27. Sampson Sales and its progeny stress that the enforceability of liquidated damages clauses require a case-sensitive inquiry which depends upon the operative facts and circumstances surrounding each particular case. Lake Ridge Academy v. Carney, 66

Ohio St. 3d 376, 384 (1993).While the Court in Lake Ridge did compare actual damages to the stipulated damages in addressing proportionality in upholding the liquidated damages clause at issue, it did not alter the Sampson Sales test to require such an analysis. Lake Ridge, in fact, continued to stress that liquidated damages clauses should be considered on a case-specific basis and that the second prong of the Sampson Sales test focuses on the “true intent” of the parties.

Accordingly, there may be times when a retroactive analysis is helpful to such a determination— especially in cases where stipulated damages are in accord with actual damages. But, again, in cases such as this where damages are difficult to calculate even after the breach occurs, a precise demonstration of actual damages cannot be a requirement of enforcing a liquidated damages provision.

A. Kent State’s damages exceed the out of pocket costs it incurred in selecting a replacement coach.

Central to Appellant’s premise in support of jurisdiction is a fundamental misunderstanding of the damages caused to Kent State when the Appellant breached his

6 agreement. Appellant unwittingly seems to take the position that he had no special skill set and/or talents when he left Kent State. He seems to suggest that he could be readily replaced by anybody off the street. That however, is demeaning to Coach Ford and not the state of affairs in

NCAA Division One Men’s basketball. Today, a successful coach at the Division One level is required to do more than draw up offenses and defenses and pass out basketballs. The testimony of the various representatives of Kent State established that the coach frequently acts as a mentor to young adults, works to ensure compliance with the myriad of rules regulating the NCAA, monitors the academic progress of the student-athletes in the program, conducts fund raising, seeks new recruits, meets with the alumni base, and a host of other duties.

It must be noted that the evidence established that Kent State did not hire a replacement with the same level of experience as the Appellant, partly due to budgetary considerations. In fact, the replacement coach had never been a head coach of any college program, but was the

Assistant Head Coach under the Appellant. Appellant blithely ignores the testimony Mr.

Kennedy that the university suffered an immediate loss of good will when Ford departed: “I don’t think that there is any coach that I’ve worked with in my experience of being an athletic director who would reach the level of Geno Ford in the surrounding community.” It is hornbook law that “Good will” is a concept of damages specifically recognized as being difficult to calculate. See, Jones v. Stevens, 112 Ohio St. 43, 54-55 (1925).

Requiring proof of actual damages under the facts of this case would defeat the purpose of including liquidated damages clauses in coaching contracts. It is precisely due to the difficulty of proof that liquidated damages are appropriate. Requiring proof of actual damages

(and comparison to liquidated damages) to uphold liquidated damages defeats the purpose of stipulating to damages that are demonstrably difficult to prove. The non-breaching party’s full

7 measure of damages may not be realized and/or ascertained until several years after the breach.

Requiring the non-breaching party to wait to sue and recover liquidated damages until damages are fully realized defeats the efficiency of a liquidated damages provision.

Contrary to acting as a penalty, damages are, of course, a legal consequence of an actionable breach of duty. Although damages in contract are properly designed to compensate the wronged party, it cannot be ignored that a promisor’s potential liability for a breach can and should have some effect on his or her decision of whether to honor its terms. If a promisor suffered no consequence for a breach, contracts would be breached with impunity. Liquidated damages provide certainty to the consequences of a breach in situations, such as this one, where damages are otherwise difficult, if not impossible, to predict. (There is no accurate barometer to determine why fans no longer support a program, or because alumni contributions decline). Yet the consequences of a breach are important to a party considering a deliberate breach of the contract—knowledge of the consequence may have the natural effect of deterring or supporting a breach. Nonetheless, the early termination fee due Kent State did nothing to deter Appellant’s contract breach—a breach which occurred less than one year after signing the extension and accepting the $100,000.00 yearly raise.

Where actual damages resulting from a breach are highly variable, and next-to- impossible to calculate at the time of contracting, courts have recognized that it would be antithetical to hold the liquidated damages provision unenforceable merely because the stipulated damages are not based on detailed calculations that estimate the probable damages resulting from a breach.

In April of 2010, Laing Kennedy could not predict the precise amount of money Bradley

University was willing to pay Gene Ford to lure him to its campus. Moreover, he could not

8 predict the success rate of any replacement coach any more than he could predict the exact loss of revenue Kent State would incur over the remaining term of the contract. Based upon his experience with the University’s previous coaches, he could predict that Gene Ford might terminate the contract if he was able to increase his market value while under contract with Kent

State. He could also predict that the Kent State athletic budget may not be sufficient to hire a replacement coach in the era of spiraling costs.

B. The central design of liquidated damages, after all, is to allow the parties to contract for damages in situations where damages are difficult to measure.

Additionally, Appellant submits that a comprehensive calculation of actual damages must be made at the time of contracting. The Comments to the Restatement of Law 2d, Contracts,

Section 356 confirm that “If the difficulty of proof of loss is great, considerable latitude is allowed in the approximation of anticipated or actual harm.” Id. at Comment b.

Ohio law accepts liquidated damages when market forces of replacement labor are unpredictable. The Ohio First District Court of Appeals applied this same concept to the employment context in Physicians Anesthesia Serv., Inc. v. Burt, 1st Dist. No. C-060761, 2007-

Ohio-6871 (Dec. 21, 2007). In Burt, the plaintiff, an associated group of practicing anesthesiologists, entered into a three-year employment agreement with the defendant, who was a certified registered-nurse anesthetist. The agreement provided that if the defendant left her employment with plaintiff before the end of her three-year commitment, she would be required to repay student loan reimbursements that she had received from the plaintiff in addition to 50% of the amount remaining on her contract as liquidated damages. Id. at ¶4. The defendant breached her contract two years into its term, taking a position with an anesthesia practice in

Northern California. In this case, Appellant’s skill set is more unique than that of a certified registered-nurse anesthetist.

Upon consideration of the liquidated damages clause, the trial court entered summary judgment for the defendant after determining that the agreement’s liquidated damages clause was void as a penalty, stating that it “served only to deter [defendant] from breaching the contract@ and that A[plaintiff] does not allege that it suffered any actual damages as a result of

[defendant’s] leaving.@ The appellate court reversed that determination reasoning that any calculation of damages which would necessarily depend upon market conditions and the availability of replacement nurses Awould be uncertain and difficult to prove.@ Id. at

¶17. Specifically, the court reasoned:

It would have been difficult to estimate the actual amount of damages that [plaintiff] would suffer at the time of contract formation because of the unpredictable market rates in effect at the time of the breach. Thus the amount of liquidated damages specified in the contract—50% of the remaining balance— was reasonably related to the amount of time remaining in [plaintiff’s] employment obligation and was a reasonable prediction of the amount of potential damages to [defendant]. Id. at ¶20.

The Burt court also rebuked the defendant’s argument that the plaintiff had to prove that it suffered actual damages as a prerequisite to enforcement of the liquidated damages provision, stating that if “a liquidated-damages clause is otherwise valid, the party seeking such damages need not prove that actual damages resulted from a breach." Id.

The DiNardo court pointed out the inherent flaw in the position Appellant continues to advance:

The potential damage to [Vanderbilt] extends far beyond the cost of merely hiring a new head football coach. It is this uncertain potentiality that the parties sought to address by providing for a sum certain to apply towards anticipated expenses and losses. It is impossible to estimate how the loss of a head football coach will affect alumni relations, public support, football ticket sales, contributions, etc. . . . . As such, to require a precise formula for calculating damages resulting from the breach of contract by a college head football coach would be tantamount to barring the parties from stipulating to liquidated damages evidence in advance.

Id. at 756 (Emphasis added).

Moreover, it cannot be said that the lower courts refused to find that Kent State failed to estimate its damages at the time of contracting as the Appellant now suggests. The Appellate

Court found that:

The salary Ford earned at Bradley shows the loss of market value in coaching experienced by Kent State, $400,000 per year, for four years. Although this may not have been known at the time the contract was executed, it could have been anticipated, and was presumably why Kent State wanted to renegotiate the contract and establish a new five-year coaching term.

Contrary to the assertion of the Appellant, the damages awarded Kent State are actually less than the actual benefit of bargain damages it incurred. Kent State demonstrated that its past three coaches had all left their contracts early for more lucrative positions and it was aware of the increasing costs associated with hiring successful college coaches to guide its program. It was only willing to increase Coach Ford’s salary to a point in which he was the highest paid men’s basketball coach in the MAC if Appellant was willing to accept the long term commitment to the program, which, in April of 2010, he said he willingly and enthusiastically was. He did so with the advice of his professional agent. He only changed his mind when a better deal came along.

Appellant understood that by accepting the increased salary that came with the contract extension, he was committing himself to an extended contract term and the early termination fee that came with it. The reciprocal early termination provisions maximize both parties’ benefit of their bargains. As the contract is fulfilled, both Kent State and the Appellant achieve their respective goals for the men’s basketball program. Appellant received additional income, long

11 term security, and, depending on the success of the program, was positioned to obtain increased revenue based upon other incentives in the contract. Should the program not succeed, Kent State could not reduce the contractual base salary of the Appellant.

Each year that the Appellant would have performed under the requirement, Kent State would have received the benefit of its bargain by obtaining its desired stability in the face of escalating salaries. See, Richard T. Karcher, The Coaching Carousel in Big-Time Intercollegiate

Athletics: Economic Implications and Legal Considerations, 20 Fordham Intell. Prop. Media &

Ent. L.J. 1, 47-56 (2009)(use of liquidated damages provisions to protect colleges when coaches breach employment contracts to leave for better position; market value of departing coach determines damage to university). As the term of the contract was fully, there was a corresponding reduction in the early termination fee representing an acknowledgment of the receipt of the contract’s non-monetary benefits.

Appellant’s reliance on the myopic view of Kent State’s damages contained in the dissenting opinion of the Appellate Court overlooks a fundamental principle of contract law— that parties are entitled to receive the full benefit of their bargain.

IV. CONCLUSION

As demonstrated, the Appellant simply fails to show that this case is one of great public or general interest warranting review by this court. The lower court decisions comport with both

Ohio law and the industry practices. The courts required Appellant to honor the terms of his contract in an amount consistent with the actual damages his breach caused to Kent State

University. As a result, the Appellant’s motion should be denied.

Respectfully submitted,

MICHAEL DeWINE ATTORNEY GENERAL OF OHIO

By:

/s/ Lawrence R. Bach______William G. Chris (0006593) Lawrence R. Bach (0021205) RODERICK LINTON BELFANCE LLP 50 South Main Street, 10th Floor Akron, Ohio 44308-1828 Phone: (330) 434-3000 Fax: (330) 434-9220 [email protected] [email protected] Outside Counsel for Plaintiff-Appellee Kent State University

CERTIFICATE OF SERVICE

Pursuant to Supreme Court Practice R. 3.11, a true copy of the foregoing was served by regular U.S. Mail, postage prepaid and via email, on March 27, 2015:

Susan M. Audey, Esq. Attorneys for Appellant Benjamin C. Sasse, Esq. Gene A. Ford 950 Main Avenue, Suite 1100 Cleveland, Ohio 44113-7213 [email protected] [email protected]

Frederick Byers, Esq. 414 N. Erie Street, 2nd Floor Toledo, Ohio 43604 [email protected] MICHAEL DeWINE ATTORNEY GENERAL OF OHIO By:

/s/ Lawrence R. Bach______William G. Chris (0006593) Lawrence R. Bach (0021205) Outside Counsel for Plaintiff-Appellee Kent State University