Parties to a contract may agree in advance to an amount of money to be paid as damages in the event of a breach – a remedy known as “liquidated damages.” In March, Shumaker Sports wrote about why it is important for a coach to “Examine your Contract” and carefully assess any liquidated damages provisions (often referred to as a “buyout clause”). Although the purpose of the “buyout” is to allow both coach and university to avoid future costs of litigating a breach of contract case, some recent lawsuits reveal that is sometimes easier said than done.
In late February, Texas A&M and LSU – rivals in the Western Division of the Southeastern Conference – filed lawsuits over whether former LSU defensive coordinator John Chavis, who now holds the same position at Texas A&M owes a $400,000 buyout. The core issue of the lawsuit involves timing and contract interpretation. According to reports, Chavis’ contract provided him the right to terminate without cause upon 30-days’written notice. If exercised, the contract would terminate 30 days after LSU received notice. A liquidated damages provision required Chavis to pay $400,000 if the contract was terminated with more than 11 months remaining on its term. However, if the contract was terminated with zero to 11 months remaining, then the buyout was zero.
Chavis asserts he gave notice to LSU on January 5, 2015, making his termination date February 4, 2015 – which was within the 11-month, zero-buyout period because the term of the contract expired on December 31, 2015. LSU claims that Chavis accepted employment with Texas A&M on January 5, 2015, following a widely publicized visit to its campus on New Year’s Day, thereby breaching his contract within the $400,000 buyout period.
In general, liquidated damages provisions are valid and enforceable if the amount of such damages represents a reasonable estimate of the actual damages that may be incurred upon a breach, and actual damages cannot be accurately predicted at the time of the contract formation. Further, a liquidated damages provision cannot be drafted merely to act as a deterrent to a future breach of the contract, or to compel performance. As illustrated by the Chavis case, the amorphous nature of these legal concepts compels clarity and precision in drafting, at a minimum, to pave the path for enforcement of a liquidated damages clause without resorting to litigation.
Some coaches succeed in negotiating exclusions to a liquidated damages provision that allow an upward career move (e.g., a coordinator to head coach) or to accept a “dream job.” But even such carve-outs do not necessarily come without controversy. For example, Oklahoma State recently filed a breach of contract suit against its former offensive line coach, Joe Wickline, for leaving to become offensive coordinator and offensive line coach at Texas. Wickline’s contract provided that if Wickline breached he would owe Oklahoma State the remainder of his salary for the contract’s term (a reported $593,478), unless he took a coaching position in the NFL or as a college offensive coordinator with “play-calling duties.” Oklahoma State alleges that Wickline’s move to Texas was a lateral one due to public comments by Texas coach Charlie Strong about the play calling duties of Texas assistant head coach and quarterbacks coach Shawn Watson. Oklahoma State claims that Wickline does not have such duties and, therefore, owes the buyout. Following depositions last month, the ultimate dispute appears no closer to resolution after Strong reportedly testified that Wickline is responsible for calling run plays, while Watson handles the passing game.
Litigation is costly, time-intensive, and a distraction to all parties. Even when these disputes do not lead to litigation, they can be subject to national news and uncertainty. For example, during the University of Florida’s recent hiring of Jim McElwain, his $7 million buyout from Colorado State was a top story for days because the buyout clause gave CSU’s president discretion as to whether to waive or reduce the buyout. This lack of clarity can greatly complicate a transition and attract unwanted attention for both the coach and university.
Making sure all parties appreciate the specifics of the buyout clauses can go a long way to saving time, money, and potential negative publicity when a coach decides to move on. The drafting or review of buyout clauses by experienced legal counsel can be helpful in identifying ambiguities and potential other issues that are better addressed on the front end, including the complex tax issues that are attendant to such clauses – another topic for later discussion.
This article was co-authored by Bennett Speyer and Seth Traub. If you would like more information, please contact Bennett Speyer at firstname.lastname@example.org or Seth Traub at email@example.com.