Supreme Court of Ohio Clerk of Court - Filed March 27, 2015 - Case No. 2015-0347 No. 2015-0347 In the Supreme Court of Ohio APPEAL FROM THE COURT OF APPEALS ELEVENTH APPELLATE DISTRICT PORTAGE COUNTY, OHIO CASE NO. 2013-P-0091 KENT STATE UNIVERSITY, Plaintiff-Appellee, v. 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 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.