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Maryland, ACC march toward legal war as exit looms

After more than a year playing legal defense, the university filed a nearly $160 million counterclaim in North Carolina court this week. The university and its soon-to-be former league are stumbling toward a messy divorce. What happens now?

Maryland and the ACC (with its commissioner John Swofford, shown above) are embroiled an an epic legal battle.
Maryland and the ACC (with its commissioner John Swofford, shown above) are embroiled an an epic legal battle.

Maryland's split from the Atlantic Coast Conference has, to date, been a series of moves and countermoves –– punches and counterpunches, really –– over the league's enormous exit fee and whether the university is obligated to pay it.

Since Maryland announced its departure from its decades-old conference in November 2012, the school has taken different legal avenues to defend itself from paying the conference's $52 million exit fee. The state of Maryland, which is representing the College Park campus and the the whole university system in court, has argued that the ACC's fee is unreasonable.

The conference, for its part, sued Maryland in late 2012 to ensure the exit fee be paid, and the state's bid to dismiss that suit was unanimously rejected last fall. So that lawsuit rolls on, while a competing university countersuit in Upper Marlboro –– this one over ACC withholding of revenue shares –– has been stalled pending the result in North Carolina, where the ACC suit burns on.

Now, for the second time since Maryland said it would leave for the Big Ten, the state is hitting back. This time, it's suing the ACC in North Carolina, the conference's own backyard and the judiciary where this whole legal morass began.

Maryland Attorney General Doug Gansler's office filed its counterclaim in Carolina court on Monday night, saying the conference violated its own governing constitution when it upped the exit fee to $52 million, just weeks before the Terps announced their plans to bolt. Maryland is making the case now, among other grievances, that the proposal wasn't submitted in writing four weeks in advance of the meeting, a requirement under the ACC constitution.

The university is seeking almost $157 million ($156,799,026, if you're an accountant) in statutory damages, plus an unspecified sum in punitive damages.

The ACC's university exit fee had been a shade over $17 million, but the conference's presidents voted in September 2012 to raise the fee to a rate equal to three times the conference's annual operating budget, which the conference and court have valued at $52 million and change. UMD President Wallace Loh voted against the increase.

The ACC's justification for the raised fee was that its financial hardship over a member leaving had "substantially increased," though the arithmetic there is more than a little hazy. The university says that the increased fee "bears no relation to actual damages (if any) to the ACC from Maryland's withdrawal," and claims it came "without basis, analysis or justification." Maryland says this would be the largest exit fee paid by any school, ever.

The state's Monday counterclaim is complicated, but the heart of its argument is simple: the calendar.

According to the ACC's own constitution for the 2012-13 academic year, changes in conference rules only become effective on the next July 1 after they are decided. Since Maryland announced in November 2012 that it would be leaving –– and since the fee increase to $52 million came only that fall –– the old fee of $17 million should apply, not the gigantic new figure, the state says. The date of applicability had yet to arrive when the university announced it would go. Even the university's formal notice of withdrawal came on June 26, before the July 1 cutoff.

In response, the ACC is bound to argue that because the university isn't officially leaving until this summer, the new exit fee will already be in effect. The first July 1 after Maryland's announcement was in 2013, and the school will join the Big Ten exactly one year later. By that measure, the conference wants to place Maryland on the hook for the whole $52 million, which would be a rather devastating financial blow for the school and a boon for the league it scorned.

Bradley Shear, a sports lawyer and George Washington University professor, told me in November that the university has "a superior long-term hand in this" because of the date-of-applicability issue.

On the whole, the ACC's suit is effectively over whether the university should pay a $17 million or $52 million exit fee before it sails into the B1G sunset on July 1. That's a discrepancy of $35 million, and it's entirely possible that the parties settle in the middle or the judiciary does so for them. Surely, neither side wants to suffer a marginal defeat of $35 million.

Of course, $35 million is just a fraction of what the state is seeking in its new counterclaim, which is where this case takes an even more interesting turn. The state is asking for $157 million in damages, plus financial punishment to be meted out by the court.

That's a "wow" figure, utterly dwarfing the $52 million the conference is seeking from Maryland in the first place. The amount of $157 million seems like something of a legal Hail Mary on Maryland's part, but the allegations contained in the state's counterclaim are serious. In the counterclaim, Maryland alleges that:

  • Representatives from Wake Forest and Pitt made backchannel attempts, encouraged by corporate partner ESPN, to poach as-yet unnamed Big Ten schools and bring them to the ACC, after Maryland announced its move in the fall of 2012;
  • The ACC has withheld NCAA grant money, which it has no control over, from Maryland (It has already begun withholding conference revenue from the school and putting it toward the $52 million exit fee, which is the subject of Maryland's stalled Upper Marlboro suit);
  • Loh has been barred from ACC Council of Presidents meetings, to which he should have a seat until the moment the university leaves the ACC.
The $157 million sought is equivalent to three times the compensatory damages for what the university views as ACC violations of Maryland state antitrust law. The North Carolina countersuit means there are now three undecided legal quarrels between the disgruntled school and conference: the initial ACC suit, the stalled countersuit in Maryland, and now this bazooka of a counterclaim in North Carolina. Between all the claims, there is something in the neighborhood of $200 million at stake. The sides might settle, or they might not. The timeline isn't clear yet.

It could be that Maryland's biggest ACC moment in 2014 comes in a courtroom, not on a basketball court.

Lee Sampson contributed.