By Robert L. Clayton, Shareholder, Littler Mendelson, P.C.
and Alyson J. Guyan, Associate, Littler Mendeslon, P.C.
In a recent decision that impacts universities and colleges, the Court of Appeals of Ohio, Tenth Appellate District, in James J. O’Brien v. The Ohio State University, 2007-Ohio-4833 (September 20, 2007), found that the conduct of former men’s basketball coach Jim O’Brien did not constitute a material breach. Therefore, under the terms of the contract, Ohio State University (“OSU”) acted prematurely by firing O’Brien on June 8, 2004. Based on this determination, the court decided that OSU owes O’Brien liquidated damages.
This case should cause universities concern to review and reevaluate the language of their coaching contracts. Specific language should be included to adequately allow the university to take action against a coach for violations of applicable law, policy, rule or regulation of the NCAA. Absent such language, universities could find themselves in the same predicament of OSU at the time of the initial lawsuit.
Factual Background
O’Brien was the head coach at Ohio State from 1998-2004, when was fired after revealing that he loaned a men’s basketball recruit $6,000. In the letter of termination, OSU relied on the first enumerated “for cause” provision in O’Brien’s contract — that this conduct was a material breach of his duty to “know, recognize and comply” with NCAA rules. OSU argued that O’Brien breached his contract when he made a loan to a men’s basketball recruit in 1998 and failed to disclose it to the University until 2004. OSU believed that this conduct constituted an egregious violation of NCAA rules constituting a material breach of employment contract. OSU took the position that it was entitled to terminate O’Brien’s employment immediately, and O’Brien was not entitled to damages.
O’Brien filed suit against OSU alleging it breached his employment contract. O’Brien argued that since an NCAA violation was cited as the reason for the University’s termination, the second enumerated “for cause” contractual provision should be controlling — a provision allowing termination for a “violation … which leads to a “major” infraction investigation by the NCAA … which results in a finding by the NCAA … of [among other things] lack of institutional control.” O’Brien further argued that he was entitled to receive the liquidated damages enumerated in the contract for “other than for cause” terminations (over $2 million).
The Ohio Court of Claims determined that the loan (and failure to disclose) was the sole cause for O’Brien’s termination, and that O’Brien’s conduct did not constitute a material breach of the contract that would have given OSU cause to terminate the contract immediately. O’Brien v. The Ohio State Univ., Ct. of Cl., No. 2004-10230, 2006-Ohio-1104. The court found that OSU was without cause to terminate him on that basis alone. The trial court ruled in favor of O’Brien, with OSU owing O’Brien liquidated damages under the contract totaling approximately $2.5 million. Both OSU and O’Brien have appealed from that judgment and decision.
Tenth Appellate District’s Decision
The issue in front of the Court of Appeals of Ohio was whether OSU acted in accordance with the undisputed contractual terms when firing O’Brien, which ultimately turned on whether O’Brien’s breach was material. O’Brien’s new contract took effect just prior to the 1999-2000 season and put strict limitations on the circumstances under which O’Brien could be terminated prior to the end of the contract. Under the new contract, OSU could terminate O’Brien for “cause” which was defined within the contract as:
1. material breach, or
2. a violation by the coach of applicable law, policy, rule or regulation of the NCAA or the Big Ten Conference which leads to a “major” infraction investigation by the NCAA or the Big Ten Conference of lack of institutional control over the men’s basketball program or which results in OSU being sanction by the NCAA or the Big Ten Conference.
OSU could terminate O’Brien without cause, but would be obligated to pay liquidated damages.
O’Brien argued that he did not believe the loan constituted an NCAA violation because the athlete had professionalized himself in 1996 after signing a professional basketball contract. Therefore, O’Brien did not inform the Athletic Director about the loan until 2004. At this time, the Athletic Director and compliance staff attorneys determined the loan should be self reported to the NCAA. O’Brien was subsequently handed a letter of termination on June 8, 2004.
In its analysis, the court relied on the fact that the NCAA did not send a notice of allegations to OSU alleging major rules infractions within the men’s basketball program until one year after O’Brien was terminated. Additionally, the NCAA concluded its investigation on March 10, 2006. Therefore, at the time of the trial (December 2005), OSU did not know whether the loan constituted an infraction, whether that infraction was secondary or major, or to what extent OSU could be punished as a result of the coach’s action.
The parties to the contract negotiated the terms and circumstances under which OSU could terminate the contract prior to the term of the contract. The court found that the parties agreed upon the condition that must occur, and that it had not occurred at the time of O’Brien’s June 8, 2004 termination. According to the court, O’Brien’s termination letter asserted that he violated what amounted to the Athletic Director’s own (or OSU’s own) interpretation of the rules, and based upon that interpretation, concluded that O’Brien materially breached his contract. Therefore, OSU acted prematurely by firing O’Brien in 2004.
On September 20, 2007, the 10th District Court of Appeals determined that there was evidence to support the Court of Claims’ decision, and therefore affirmed the decision that Ohio State must pay former men’s basketball coach Jim O’Brien more than $2.4 million for his wrongful firing in 2004. Ohio State has until November 5, 2007 on which to appeal to the Supreme Court of Ohio.
Lessons Learned
In light of the September 2007 decision by the Court of Appeals of Ohio, Tenth Appellate District, universities should review and amend their coaching contracts to be consistent with this decision. NCAA Bylaws require that coaching contracts state that a coach or administrator who is found in violation of applicable law, policy, rule or regulation of the NCAA, shall be subject to disciplinary or corrective action as set forth in the provisions of the NCAA enforcement procedures, including suspension without pay or termination of employment for significant or repetitive violations.
It is important for universities to determine whether or not this language adequately allows the university to take its own actions to suspend or terminate a coach, and whether a university wants to be limited to suspending or terminating only in the case of “significant or repetitive violations.” Coaching contracts should include language that would permit a university to take action if the university determines a violation occurs, rather than await a decision by the NCAA.
