North Carolina Court of Appeals Says: We Don't Fear The Turtle

You've no doubt heard about the University of Maryland's withdrawal from the Atlantic Coast Conference and the University's unwillingness to pay the $50 million withdrawal fee required by the Constitution of the ACC.

This week, in Atlantic Coast Conference v. University of Maryland, the NCCOA rejected the U of M's contention that it was entitled to sovereign immunity from suit in North Carolina to collect the fee. The case will go forward on the issue of whether that sizeable fee is an appropriate measure of liquidated damages or an unconstitutional penalty.

The withdrawal fee is three times the ACC's total annual operating budget.  It adds up precisely to $52,266,342.  We are unfortunately well away from the time when the courts will rule on whether the withdrawal fee is enforceable as a liquidated damages provision.

Under NC law:

A stipulated sum is for liquidated damages only (1) where the damages which the parties reasonably anticipate are difficult to ascertain because of their indefiniteness or uncertainty and (2) where the amount stipulated is either a reasonable estimate of the damages which would probably be caused by a breach or is reasonably proportionate to the damages which have actually been caused by the breach.

E. Carolina Internal Med. v. Faidas, 149 N.C. App. 940, 945-46, 564 S.E.2d 53, 56 (2002).

The $52 million fee is said to be the largest to be assessed upon a team leaving an athletic conference.  Syracuse, for example, was assessed $7.5 million upon leaving the Big East conference to join the ACC. 

But the opinion doesn't assess at all the enforceability of the fee.  Instead, the opinion focuses on whether the trial court's decision not to dismiss the case was immediately appealable and whether North Carolina should extend comity to its "sister state" on the University of Maryland's sovereign immunity request.

The decision of the trial court that it would not allow the University of Maryland the defense of sovereign immunity was immediately appealable because it affected the University's "substantial right" to be free from defending a case from which it might be immune.

But why shouldn't the State of North Carolina accord the University of the State of Maryland the defense of sovereign immunity?  Apart from what might be a general dislike of the Terrapins, the reason was that the ACC's claim is one for a breach of contract.  The Court said:

public policy is violated in North Carolina when the State is allowed to assert sovereign immunity as a defense to causes of action based on contract. It would seem plain, then, that because the ACC is seeking a declaration as to the parties’ rights and obligations under the terms of the ACC Constitution, it would violate public policy to extend comity to Defendants' claim of sovereign immunity.

Op. 19-20.

In an earlier decision, the NC Supreme Court  had said that allowing a State to walk away from its contractual obligations and to claim sovereign immunity "would be judicial sanction of the highest type of governmental tyranny."  Smith v. State, 289 N.C. 303, 320, 222 S.E.2d 412, 423 (1976).

Maryland is a member of the ACC through the 2013-14 season and will play in the 2014 ACC basketball tournament here in Greensboro.  I only live a few miles from the Greensboro Coliseum.  The Terps can drop that $52 million on my front lawn if they would like.

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