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Thursday, April 24, 2008
 
U. of Hawaii Enforces Contract Against Breaching Coach

In the first week of January, Hawaii football coach June Jones terminated his 5-year contract that expires on June 30 of this year and accepted a job worth about $2 million per year at Southern Methodist. Hawaii claims it is entitled to damages for his early termination in the amount of $400,008 (which amount represents half of his annual salary). Section 10.4 of the agreement clearly provides, "If Coach terminates this Agreement prior to June 30, 2008,...Coach shall pay to the University as liquidated damages the sum of $400,008."

Jones is now trying to get out of paying Hawaii. According to Jones' agent, Leigh Steinberg, there was an agreement with former athletics director Herman Frazier that "after three years, there would be no penalty if coach Jones were to leave the university. If that were not the case, coach Jones would always honor a contractual obligation." However, this alleged agreement with Frazier directly contradicts Section 10.2, which provides:
Coach therefore agrees, and specifically promises, not to accept employment, under any circumstances, as a men's football coach at any institution of higher education which is a member of the NCAA...requiring performance of duties prior to the expiration date of the term of this Agreement or any extension thereof, without first obtaining a written release of this Agreement or a negotiated settlement thereof in writing accepted by Coach and the University. In the event that the University releases Coach of his obligations under this Agreement, Coach shall be responsible for paying to the University liquidated damages, as set forth in Section 10.4.
Despite Sections 10.2 and 10.4, Steinberg says the matter is in the initial stages of being submitted to an arbitrator. Section 10.3 of the contract provides that disputes shall be decided in a final and binding arbitration by a mutually agreed upon arbitrator.

Jones breached his contract with Hawaii, and the contract is crystal clear that he owes $400,008. His refusal to pay Hawaii is the result of a culture that currently exists within collegiate athletics that schools won't, or shouldn't, enforce a contract against a coach who leaves for a more lucrative situation. Jones should feel fortunate that Hawaii released him from his contract, thus triggering the liquidated damages clause. Hawaii could have elected not to release him and pursue a negative injunction to prevent Jones from signing with SMU, because Jones acknowledged in his contract that the university would be irreparably harmed if he terminated early:
Coach represents to have special, exceptional and unique knowledge, skill and ability as a men's football coach, which, in addition to the future development of coaching experience at University, as well as University's special need for continuity in its men's football program, will render Coach's services unique. Coach recognizes that the loss of Coach's services to University, without University approval and release, prior to the expiration of the term of this Agreement or any renewal thereof, would cause an inherent loss to University which cannot be estimated with certainty, or fairly or adequately.





14 Comments:

I'm rooting for Hawaii!

Anonymous Anonymous -- 4/24/2008 7:01 AM  


Ok. I'm all for these schools enforcing their contracts, but this seems to border on the crazy.

Unless I misunderstand things, Jones would only be obligated to stay through June 30th of this year? If the school sought a negative injunction, wouldn't it only be good through June 30th, at which time Jones would be free to seek employment elsewhere?

I assume that this would set Hawaii recruiting back a year because, presumably, Jones wouldn't be very excited about recruiting anyone knowing that he was going to leave in two months. Wouldn't Hawaii be better served to get a new coach in place and start recruiting? This isn't the same scenario as discussed earlier where keeping a coach in place through a negative injunction where the coach had a long term contract and it would be in his (and the school's) best interest to continue to field the best team possible. Would cut of be like cutting off your nose to spite your face?

Just because you can do something, legally, doesn't mean that you should.

Anonymous Anonymous -- 4/24/2008 8:38 AM  


Seriously. Rick's advocacy for colleges attempting to get injunctions against coaches taking other jobs is bordering on the obsessive. This situation happens dozens of times a year, and yet not one college in the recent past has attempted this strategy. There must be a reason.

Blogger John R. -- 4/24/2008 8:48 AM  


The reason is it will make it more difficult for the institution to hire coaches in the future . . . their agents will steer them away, saying "those schools have a history of enforcing contracts."

What a concept!

Anonymous Glenn -- 4/24/2008 11:11 AM  


Anon,

You raise a good point, and I agree with you that Hawaii is making the right decision here.

John R,

I like to stir things up sometimes. And I think you mentioned previously on the blog that you represent coaches, so I guess it's understandable why you wouldn't want me to be discussing the negative injunction remedy.

Blogger Rick Karcher -- 4/24/2008 11:59 AM  


Well, the idea of an injunction is not a novel one. So, I certainly don't mind the idea being raised. It's just that even assuming a court would grant such an injunction, there are a number of reasons it's not a practical soluton for these schools.

I haven't read Jones' contract but if it really does expire in June, I would think they'd have a good argument that the $400,000 liquidated damages provision acts as a penalty. How much has the school really been damaged if theer were onyl a few months left on his deal?

Blogger John R. -- 4/24/2008 12:16 PM  


Though I'm sure his contract was/is laced with performance incentives (not sure that's what you call bonuses in this case), such as if UH wins the WAC or makes a bowl game, then he receives a check, it seems somewhat unfair for UH to hold him to dolling out the liquidated sum since he was so successful with such a low profile program. If I were his attorney I would point to the bottom line in revenue generated from the previous two seasons for the parent institution as circumstance that likely wasn't anticipated at the contract's formation.

Blogger Will -- 4/24/2008 3:50 PM  


Excuse me? Unfair? Don't both parties agree to what is "fair" and is that not the purpose of liquidated damages? You people who opine that liquidated damages are "unfair" are probably the same people who argue that agreeing to arbitration as a means to resolve a contract dispute, even if both parties agreed to that in the contract, violates one's right to litigation or trial by jury!

Anonymous Anonymous -- 4/24/2008 6:16 PM  


Wow! I guess you have everyone figured out!

I'm simply saying that when the liquidated damages provision was agreed to, neither party knew what would be fair in the future. The condition was premised on the idea that UH would be out some cash if Jones left early. Instead, Jones brought millions in and for all intents and purposes fulfilled the contract by coaching for 5 seasons.

I'm not going to explain why this is a different situation entirely from a condition requiring arbitration... you obviously know more than I do about my own opinions.

Blogger Will -- 4/24/2008 10:34 PM  


Okay. I see now. Your approach is "Agree to liquidated damages, but then if they are not fair in the future, we'll just debate (or litigate) whether they are fair." I'm sure the American Association for Justice (formerly ATLA) is proud of you! This is not a matter of opinion here: it's whether you believe in contracts or contract law principles. Even if you are right (which you aren't), can't you at least find it refreshing that a university is actually ENFORCING their contract with their coach? I believe that was the point/theme of these recent Prof. Karcher's posts.

Anonymous Anonymous -- 4/25/2008 6:17 AM  


Anon 6:17

Actually, some states do employ a "look back" to see whether the liquidated damages are "reasonable" in light of what damage was actually sustained.

Anonymous Anonymous -- 4/25/2008 8:04 AM  


I'm with the side that says Hawaii's position seems weak here. Jones staying through June 30 when he intended to leave would have done more damage to the program than leaving when he did - recruiting would be screwed up, as would spring practice, summer mini-camps, etc. No school in its right mind wants to hire a coach to start July 1.

If I'm Jones, I argue:
1. The damages clause is a penalty in this circumstance
2. If Hawaii wants a negative injunction, then the injunction must be broadened so that Hawaii's new coach can do nothing for Hawaii until July 1.

Anonymous Michael Risch -- 4/25/2008 8:22 AM  


Anon 8:04,

Even under that scenario, which is a minority view by the way, how much damage was actually incurred? It can't be ascertained.

And I don't believe that any arbitrator would rule that this particular liquidated damages clause is unenforceable as a penalty.

Blogger Rick Karcher -- 4/25/2008 10:00 AM  


Anon 8:04: They are called liquidated damages not because they are "damages" at all. That's litigator talk. They are an agreed upon "penalty" that the parties agreed upon in good faith. Again: I think it's great that colleges are finally showing some guts here and taking a stand. Let's call it the "Karcher" principle.

Anonymous Anonymous -- 4/25/2008 10:32 AM  


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