Ed's note: After the ACC filed suit against Maryland seeking to guarantee the school paid a $52 million exit to join the Big Ten, we had attorney Matthew Royack break down the case for our readers. We're proud to have him back to break down the state of Maryland's recent counter suit.
Maryland officially joined the existing North Carolina lawsuit between itself and the ACC last Friday, and even went on the offensive by instituting its own lawsuit in Prince George's County Circuit Court. I'll break down both of those filings, but at the outset, I believe there is more important point to discuss first.
As I feared and wrote about in my initial article, the ACC is withholding revenue distributions from Maryland. The Washington Post reported that the ACC has withheld $3,067,255.27 in Maryland's "respective share of the initial distribution of gross television revenues for 2012-13," according to a letter from ACC associate commissioner Jeff Elliot to Maryland athletic director Kevin Anderson. The letter went on to say that the $3 million withheld was "collateral against the [exit fee]."
Since the Big Ten move was announced, Maryland has received a cold shoulder from opposing ACC teams and the league itself, with the most visible slights being suspicions of suspect officiating and questionable schedules. All of these perceived slights pale in comparison to the intentional harm inflicted by withholding cash from Maryland. Further, since Maryland's athletic department is already in the red, losing $3 million, which it was already counting on, is a huge blow. This move is technically permitted by the ACC bylaws, but is aggressive, analogous to a nasty divorce where one spouse cancels all the credit cards and closes the joint bank account. In addition, the move puts pressure on Maryland to resolve this matter quickly, and may force them to come to the negotiating table out of a position of weakness. Make no mistake: the ACC is trying to hurt Maryland athletics.
In a sense, though, the ACC is ignoring its own lawsuit. In the suit, the ACC asked the Guilford County, North Carolina court to determine whether the bylaw proscribing the $52 million exit fee is valid and binding on Maryland. The complaint asks for declaratory relief, in which a judge would determine the legality of the exit fee bylaw. By withholding funds from Maryland as "collateral against the exit fee," the ACC has already pre-judged the issue, decided that the bylaw is enforceable, and proceeded to collection. If nothing else, the ACC's action of withholding funds is inconsistent with its complaint.
To combat the ACC's efforts, Maryland Attorney General Doug Gansler, on behalf of the Board of Regents, has moved to dismiss the Complaint filed in North Carolina, claiming that North Carolina has no jurisdiction over the sovereign State of Maryland and its public university. The jurisdiction issue will serve as a microcosm of the lawsuit as a whole, since it will be the first test of the ACC's bylaws, which contain a provision establishing jurisdiction in North Carolina. Maryland's argument on jurisdiction will be similar to its argument on the exit fee; namely, the provision exists, but should be void because it is unlawful.
Typically, jurisdiction exists where the Defendant resides or transacts business, which in this case is Maryland. For parties in different states, the standard for jurisdiction is a "minimum contacts" test. The ACC conducts business in Maryland by virtue of UMD being a member school and hosting league games. By the same token, UMD conducts business in North Carolina by sending its teams to play there. I would argue that the ACC's business in Maryland outweighs UMD's business in North Carolina, based on the disparity in the number of ACC games in Maryland weighed against the number of UMD games in North Carolina.
At the same time, Gansler filed a complaint against the ACC in Prince George's County Circuit Court. Maryland's complaint asks for an injunction to prohibit the ACC from enforcing the exit fee. This complaint is a direct result of, and a response to, the ACC withholding funds from Maryland, and seeks a return of the $3 million that has been withheld. In addition to requesting the injunction and the return of funds, the complaint also asks the Court to declare the exit fee provision invalid due to the fact that it is an illegal restraint of trade as well as an illegal penalty.
These are the substantive issues at the heart of this matter, which have now been raised for the first time. The ACC has yet to weigh in on these issues, and it may be quite some time before they do. The next step is for the ACC to file an answer, which is a simple pleading where the Defendant either admits or denies each allegation. I would also expect the ACC to take a similar track to what Maryland has done, and move to dismiss the Maryland complaint for a lack of jurisdiction. Settle in, this could take awhile.
One positive effect of the court filings is that they could lead to substantive negotiation of the exit fee. While there has been no word yet on out of court discussions regarding the exit fee, those type of negotiations typically follow a court ruling. For example, if the North Carolina Court dismisses the ACC's complaint, the ACC would be in a position of weakness and may offer to accept less. Hopefully that ball will get rolling in Maryland's favor, now that it's active in the case.
Matthew D. Royack, Esq. is an associate attorney with the law firm of Adelberg, Rudow, Dorf & Hendler, LLC. Mr. Royack maintains offices in Baltimore City and Howard County and concentrates in the areas of business and real estate transactions, general corporate matter, commercial litigation, and estate planning. He can be reached at email@example.com or (410) 539-5195.