In a majority decision, an Ohio state appeals court affirmed a ruling that a college basketball coach, who breached a contract he had with Kent State University (KSU), must now pay the school liquidated damages in the amount of $1.2 million.
The ruling was significant for several reasons, one of which was that the court ruled for the university, even though there was “limited evidence of actual damages.”
The contractual relationship between the parties goes back to April of 2008, when Gene Ford and KSU executed an employment contract, employing Ford as the school’s head men’s basketball coach for a period of four years, with an option for a fifth year. The contract contained the following provision:
“GENE A. FORD recognizes that his promise to work for the UNIVERSITY for the entire term of this four (4) year Contract is of the essence of this Contract with the UNIVERSITY. GENE A. FORD also recognizes that the UNIVERSITY is making a highly valuable investment in his continued employment by entering into this Contract and its investment would be lost were he to resign or otherwise terminate his employment with the UNIVERSITY prior to the expiration of this Contract. Accordingly, he will pay to the UNIVERSITY as liquidated damages an amount equal to his base and supplemental salary, multiplied by the number of years (or portion(s) thereof) remaining on the Contract.
“Further, the contract provided that if Ford terminated his employment prior to the contract’s expiration, ‘and is employed or performing services for a person or institution other than the UNIVERSITY,’ he ‘shall pay an amount equal to the balance of the then-current total annual salary due for the remaining amount of the term of this Contract.’”
In April 2010, Ford signed a contract extension that included the same clause, requiring him to pay KSU the sum equal to his base and supplementary salary multiplied by the number of years remaining on the contract. That clause was triggered when Ford accepted a job that summer with Bradley University.
KSU, which had lost four head men’s basketball coaches in 11 years, sued, charging that it was owed the $1.2 million in liquidated damages, since Ford had four years remaining on his contract at a total annual salary of $300,000.
Discovery in the litigation did provide some interesting revelations.
Joel Nielsen, KSU’s athletic director, testified that in early 2011, as Ford was flirting with Bradley, that he reminded Ford of the liquidated damages provision in the contract. Soon thereafter, Ford accepted the position at Bradley, at an annual salary of $700,000. Nielsen hired assistant coach Robert Senderoff in early April 2011 to replace Ford.
Nielsen testified that the liquidated damages clause was included to protect the University by providing coaching continuity, which aids in recruiting players. Nielsen did not know of any players who left the program or of any specific recruits that may have decided not to attend the school because of Ford’s departure, although he believed it would impact some potential future recruits. Nielsen explained the cost associated with conducting a coaching search to replace Ford, including time and travel for interviews. He outlined as potential damages the “loss of investment” in Ford, including “equity” built up with fans and donors. “He conceded that, when coaches left in the past, the team continued to perform well,” wrote the appeals court.
Ford filed a motion for summary judgment on January 17, 2012. He argued that Kent State suffered no damages as a result of his departure. He asserted that the liquidated damages clause was defective, since its objective was “punitive deterrence of breach,” and the amount was disproportionate to any anticipated or actual damages. On the same date, Bradley filed a motion for summary judgment.
Kent State countered with its own summary judgment motion.
On July 12, 2013, the court ruled that Ford breached his employment contract and that the liquidated damages provision was enforceable.
Ford appealed, arguing that the liquidated damages clause in his employment contract was an unenforceable penalty and does not comply with the factors contained in Samson Sales, Inc. v. Honeywell, Inc., 12 Ohio St.3d 27, 12 Ohio B. 23, 465 N.E.2d 392 (1984).
In Samson, the Supreme Court of Ohio set forth the test for determining whether a liquidated damages provision should be upheld:
“Where the parties have agreed on the amount of damages, ascertained by estimation and adjustment, and have expressed this agreement in clear and unambiguous terms, the amount so fixed should be treated as liquidated damages and not as a penalty, if the damages would be (1) uncertain as to amount and difficult of proof, and if (2) the contract as a whole is not so manifestly unconscionable, unreasonable, and disproportionate in amount as to justify the conclusion that it does not express the true intention of the parties, and if (3) the contract is consistent with the conclusion that it was the intention of the parties that damages in the amount stated should follow the breach thereof. 12 Ohio St.3d 27, 12 Ohio B. 23, 465 N.E.2d 392, at the syllabus.
“The application of Samson to the facts of this case supports a conclusion that the liquidated damages provision was properly enforced by the lower court,” wrote the appeals court. “The parties agreed on an amount of damages, stated in clear terms in Ford’s second employment contract. Regarding the first factor, the difficulty of ascertaining the damages resulting from Ford’s breach, it is apparent that such damages were difficult, if not impossible, to determine. Based on the testimony presented, the departure of a university’s head basketball coach may result in a decrease in ticket sales, impact the ability to successfully recruit players and community support for the team, and require a search for both a new coach and additional coaching staff. Many of these damages cannot be easily measured or proven. This is especially true given the nature of how such factors may change over the course of different coaches’ tenures with a sports program or team.
“A similar conclusion regarding the difficulty of ascertaining damages from a university coach’s breach was reached in Vanderbilt Univ. v. DiNardo, 174 F.3d 751 (6th Cir.1999), one of the few cases related to liquidated damages in a university coaching scenario. The DiNardo Court cited the district court’s opinion, which found that damages from losing a head football coach are uncertain and ‘it is impossible to estimate how the loss of a head football coach will affect alumni relations, public support, football ticket sales, contributions, etc. To require a precise formula for calculating damages resulting from the breach of contract by a college head football coach would be tantamount to barring the parties from stipulating to liquidated damages evidence in advance.’ Id. at 756. The court held that the university’s head football coach was hired ‘for a unique and specialized position,’ with the parties understanding that damages could not be easily ascertained if a breach occurred, especially given that the provision was reciprocal and was the result of negotiations by both parties, which is the case in the present matter as well. Id. at 757.”
In the dissenting opinion, the court ruled that “it is impossible to determine whether the stipulated damages clause is reasonable and proportionate. Thus, it is inappropriate to conclude, as a matter of law, that there are no genuine issues of fact to be resolved, and the stipulated damages provision in the contract is to be construed as liquated damages and not a penalty clause. There is significant evidence that Kent State did not make an effort, prior to or at the time of contracting, to identify either the types of damages or the amount of damages it would incur following a breach. There is evidence, however, that the damages sustained by Kent State as a result of a breach would be the same if a breach occurred in the last year of the contract or in the second year of the contract. As the evidence must be construed in a light most favorable to the non-moving party, the escalation clause contained in the contract could be considered a penalty. As a result, there remain genuine issues of material fact to be litigated on this dispositive issue.”
Kent State University v. Gene A. Ford, et al., Ct. App. Ohio, 11th App. Dist., Portage Co.;
CASE NO. 2013-P-0091, 2015-Ohio-41; 2015 Ohio App. LEXIS 36; 1/12/15
Attorneys of Record: (For Plaintiff-Appellee) Lawrence R. Bach, William G. Chris, and Rodd A. Sanders, Roderick Linton Belfance LLP, Akron, OH. (For Defendant-Appellant) Susan M. Audey and Benjamin C. Sasse, Tucker, Ellis, L.L.P., Cleveland, OH, and Frederick Byers, Toledo, OH.