Thoughts on Rutgers v. Big East

The Star-Ledger-US PRESSWIRE

It's more hairy than West Virginia

Amazingly, Rutgers' lawsuit against the Big East for withdrawal and exit fees flew under the radar for over 2 weeks. The complaint was literally filed minutes before B1G issued a press release announcing Rutgers to the Big East. No one really noticed until the last few days.

Leaving aside legal analysis, Rutgers is obviously parroting West Virginia's strategy of using the courts to leverage negotiations for an early exit. Pitt piggybacked off West Virginia's suit and filed one of their own. Each of those cases settled with West Virginia, Notre Dame, TCU and Syracuse all reaching settlement for withdrawal without much drama or expense. Rutgers' move is obviously more offense akin to West Virginia's move and somewhat a formality to engage in negotiations with a pending lawsuit as leverage. Most of this is fairly obvious or at least analyzed at length by the press.

The biggest difference, however, is that Rutgers' lawsuit may have more merit and teeth than West Virginia's or Pittsburgh's claims. I was pretty skeptical of both those prior suits because typically in membership organizations (which the Big East is), a member cannot simply run to the courts because they view the organization as weak. The only real leverage that the previous actions had were 1) home court advantage (thus, the fear of local protectionism by local judges/juries); and 2) the Big East's ability to sustain litigation costs against universities with a better litigation bankroll.

In Rutgers' case, the merits are much stronger because there exists the elements of oppression and arbitrary action/inaction targeted at Rutgers. What's really important is that the substantive standard of law is governed by D.C. law. In most Northeast jurisdictions, breach of fiduciary duty (the primary claim) is governed by the "business judgment rule" which means that in the absence of fraud, bad faith, or gross misconduct, the courts will give deference to the decisions of leadership irrespective of the results. D.C. law scrutinizes decisions of a membership organization based upon "reasonableness". It's not so much a lesser standard, but different and in some cases, broader. A detailed primer into the law would be too long of a post. The relevance, here, is that even if the Big East didn't simply single out Rutgers (through bad faith), the court will engage in far greater scrutiny into the process and decision making.

The West Virginia and Pittsburgh lawsuits had a very limited context to resolve since those conference moves (with Syracuse) were made in a very short span of time. Rutgers now has multiple tiers of precedence on withdrawal protocols: 1) BBall school (Notre Dame); 2) New Member (TCU); 3) Legacy Member (Syracuse); and 4) Immediate Withdrawal (West Virginia). It can also point to impact concerning new membership and scheduling (Temple). And, now they have 3 years of board voting history centered around realignment. Most membership organizations are highly sensitive to their inner dealings. The context of a typical suit would be isolated to certain facts and circumstances. However, Rutgers suit would effectively open up full exposure into all aspects of the Big East which, considering its recent history, would likely be extremely humiliating. Assuming Rutgers' story is true, I am inclined to think Rutgers' claim to revoke membership without penalty may actually be better than strong.

The weakness of Rutgers' lawsuit, IMO, is its claim for withdrawal fees. The conventional wisdom is that the money owed to Rutgers through the Big East would offset Rutgers withdrawal fees. I don't have enough facts from reading the complaint to know the nature of the promise and existence of a vested right to proceeds. However, the fact that Rutgers will receive more lucrative pay from the B1G may end up precluding a claim for monetary disbursements. The "purpose" of the withdrawal fees is to compensate other members from potential loss from withdrawal. This claim may likely be limited to the WVU/TCU scenario where Rutgers lost a valuable home game. Rutgers' burden to prove money damages, especially when the direct beneficiary is the Big East and no money has yet been vested into Big East accounts, may be hard to overcome. Instead, it would likely be shown (apart the fiduciary claims) that Rutgers gained from withdrawal and all other Big East members (new and old) were hurt disproportionately by Rutgers withdrawal. Fortunately, any damage that flows from Rutgers withdrawal (via breach of contract) is limited to the contractual stipulations.

This weakness, however, is not entirely a slam dunk for the Big East either. Rutgers was indeed hurt by the loss of West Virginia/TCU from its schedule. There is some ambiguity on how the promises were made that further court proceedings may shed some light into. If the Big East, indeed, tried to manipulate the proceeds from withdrawal fees in a way to target and hurt Rutgers while letting others go scott free, a court would be hard pressed not to find some additional equitable remedies in favor of Rutgers.

The only remaining thought is whether the Big East will be treating this lawsuit as their Alamo. Bet the house and future, irrespective of the weakness or strengths. The Big East is in a fragile position and may be on the cusp of death. It's not uncommon for distressed firms to engage in suicide pact litigation where there is virtually nothing to lose. I doubt the remaining membership would want to be burdened with this, but some history has demonstrated that the Big East is not the most rational bunch.

That said. I'll just throw this prediction in. Rutgers withdraws from Big East starting 2014 with a $5 million dollar withdrawal fee.

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