Both the Florida and North Carolina courts have now dipped their toes into Florida State University’s (“FSU”) dispute with the Atlantic Coast Conference (“ACC”) over the high exit price the school must pay to leave the conference. As we wrote last December, FSU and the ACC kicked off the holiday season with reciprocal lawsuits concerning the enforceability of the withdrawal fee in the ACC’s Grant of Rights agreement. FSU asked a Florida court to invalidate the fee for being an unenforceable penalty, in violation of antitrust law. The ACC, in turn, asked a North Carolina court to uphold the fee, claiming that FSU’s acceptance of revenue payments under the Grant of Rights for years estops it from now attacking the validity of the withdrawal fee, which comes to approximately $572 million.[1]
Complicating matters, Clemson joined the party on March 19, 2024, suing the ACC in South Carolina state court over these same withdrawal penalties.[2] In keeping with past practice, within a day, the ACC countersued Clemson in Mecklenburg County, North Carolina, seeking the same relief as it does against FSU. Surprisingly, the ACC has not moved to consolidate its suit against Clemson with its suit against FSU, as it could have done pursuant to the North Carolina Rule of Civil Procedure 42(a), which allows a court to consolidate matters involving common questions of law and fact pending in the same court.[3] Here, the factual and legal issues at stake are almost entirely overlapping, and while FSU and Clemson are not the same party, they are suing, and being sued, by the same party.[4] Consolidation of the two North Carolina cases, though clearly not FSU’s preference, would foster judicial economy and minimize the risk of conflicting rulings.[5]
In the absence of consolidation, the multiple suits and countersuits between the ACC and these two members bring up a series of concerns surrounding jurisdictional priority, ripeness for judicial review, and forum shopping. And, with three forums now involved, the likelihood of inconsistent rulings is an even stronger possibility. Recent motions by FSU and ACC to dismiss each other’s respective actions at the pleading stage presented an opportunity for the courts to resolve some of this.
Forum: North Carolina Gets to Adjudicate the Dispute, and Maybe Florida, Too
North Carolina went first, addressing FSU’s motion to dismiss, or, in the alternative, stay the ACC’s lawsuit. FSU’s dismissal motion argued that several procedural hurdles blocked the ACC’s suit. For starters, the ACC had not obtained approval from two-thirds of its members, a requirement under the ACC’s Constitution for the initiation of “material litigation.”[6] FSU also argued that as a public university, Florida’s sovereign immunity extended to it, barring the ACC’s suit.[7] FSU further claimed that the ACC had sued the wrong party, the named defendant being FSU’s Board, instead of the university itself, which is the contractual party to the Grant of Rights.[8]
On April 4, 2024, the court denied FSU’s motion, allowing the ACC’s action to go forward in North Carolina.[9] In upholding the ACC’s claims, the North Carolina court determined that the ACC had authority to bring its lawsuit, even if it lacked two-thirds member approval when it filed its original complaint. The court reasoned that because the conference later obtained two-thirds member approval to file an amended complaint, the original complaint’s filing was retroactively ratified.[10] The court also determined that FSU waived its sovereign immunity by engaging in commercial, as opposed to governmental, activity. The court found that FSU’s “Conference-related” activities, including assenting to the aggregation of media rights to ensure future financial stability, were commercial in nature.[11] Last, the court rejected the argument that the ACC sued the wrong party, as FSU’s Board conceded that while the Grant of Rights may have been signed by FSU, the FSU Board was the contracting agent.[12]
The ACC’s motion to dismiss FSU’s suit raised similar threshold issues concerning the Florida court’s authority to adjudicate the dispute. The ACC argued that FSU’s action is not ripe for judicial review because FSU has still not officially withdrawn from the conference. Instead, FSU only requests “guidance from the court” to inform its decision on withdrawal at some future point, which amounts to asking the court to issue an impermissible advisory opinion.[13]
Additionally, the ACC argued that the Florida courts lacked personal jurisdiction over the conference. The ACC maintained that FSU mangled its personal jurisdictional pleading by confusing the standards for federal diversity jurisdiction and personal jurisdiction. FSU’s basis for personal jurisdiction was that “[b]ecause the ACC is a citizen of every jurisdiction in which its members are citizens, and two ACC members are Florida citizens, the Court has personal jurisdiction over it.”[14] The ACC explained that although citizenship alone is relevant for purposes of assessing federal diversity jurisdiction in disputes among citizens of different states, a bare allegation of member citizenship, without more, is insufficient to satisfy the minimum contacts required for personal jurisdiction under Florida’s long-arm statute.[15]
Agreeing with the ACC on at least one of its arguments, on April 22, 2024, the Florida court held that FSU failed to adequately allege personal jurisdiction over the conference. This could have been a clear-cut disposal of the proper forum question, placing the dispute squarely in North Carolina, and avoiding the risk of inconsistent rulings. However, the Florida court was not willing to let go that easily. The judge granted FSU leave to replead to bolster its jurisdictional allegations, ruling from the bench that “[o]n a case that is worth, from what I am told, half a billion dollars, I need a more clear example of personal jurisdiction.”[16]
Having been granted leave to amend, it is now up to FSU to beef up its pleading by showing that the ACC has sufficient contacts with Florida to justify hauling the conference into a Florida court. If FSU can achieve this, then there is a chance that North Carolina will not be the only court with a say over the enforceability of the Grant of Rights’ withdrawal fee. The result could be a morass of contradictory dictates, leaving the conference, and its members, in legal limbo over their exit rights and obligations.
The Merits of Florida State’s Case
As to the ultimate merits, the North Carolina court, in denying FSU’s motion, tipped its hand. The court held that the ACC adequately pled that the “FSU Board should be estopped from challenging or has waived its right to challenge [the Grant of Rights] by its conduct in accepting the benefits of [it] for years without protest.”[17] This of course is not a ruling that the ACC has proven waiver or estoppel, only that the ACC’s suit survives dismissal at the pleading stage. However, neither party disputes that FSU accepted revenues under the Grant of Rights for years. Hence as a purely legal matter, moving past the pleading stage, fact discovery is not likely to alter the North Carolina court’s apparent conclusion that by accepting the benefits bestowed upon it by the Grant of Rights, FSU waived its right to disclaim the agreement’s withdrawal fee.
Further, in considering FSU’s alternative motion to stay, the court rejected FSU’s argument that the ACC engaged in “procedural fencing” by rushing to the courthouse to gain a first-filer advantage that would deny the “natural plaintiff,” FSU, its forum of choice.[18] Rejecting this argument, the court held that FSU was not in fact the ”natural plaintiff” in the dispute, the natural plaintiff being the ACC, the party faced with FSU refusing to honor the bargain it struck years ago with the ACC.[19] Seen as the breaching party from inception, it may be an uphill battle for FSU to persuade the North Carolina court to invalidate the revenue forfeiture.
As the case proceeds in North Carolina, the ACC’s motion to dismiss FSU’s complaint offers a peek into the positions the conference will advance in advocating enforcement of the withdrawal payment. Regarding antitrust violation, the ACC claims there is no injury to market competitiveness, because any injury is limited to the competitiveness of the conference and the school. In so arguing, the ACC’s motion relies on the case Capital Wealth Advisors, LLC v. Cap. Wealth Advisors, Inc. 335 So. 3d 164, 166 (Fla. Dist. Ct. App. 2021) that we covered in our article in December 2023.[20] Capital Wealth Advisors held that prohibitions on trade restraints are concerned with protecting the public from harm to competition, not protecting “the competitiveness or incentives of individual actors.”[21] These restraints are thus not implicated where agreements only have competitive effects on the contractual parties, as is the case here.
The ACC also calls out the irony of FSU crying antitrust violation, pointing out that, if anything, FSU’s lawsuit highlights the ACC’s lack of market control. Per the ACC, “all [FSU’s] allegations are that the ACC does not have the market power of the SEC and Big Ten and, as a result, Florida State has suffered financially.”[22] By these allegations, FSU has pled itself out of an antitrust claim, the conference’s purported loss of market power undercutting its ability to control the market for media rights.
As for the exit fee being a liquidated damages penalty, the ACC counters that this characterization is improper because the fee is not triggered by a breach, the predicate for liquidated damages. The ACC claims that, under North Carolina law, the withdrawal payment is properly characterized as an alternative means for FSU to perform its obligations under the Grant of Rights.[23] FSU has two options: it can remain in the ACC and continue receiving annual media rights revenues, or it can leave the ACC and pay the withdrawal fee, which is equivalent to the years of media rights revenue it transferred to the ACC for the duration of the Grant of Rights.[24] However, under neither scenario is FSU’s withdrawal from the ACC a breach. It should be noted here that the characterization of the fee as an alternative means of performance is contrary to the description of the withdrawal fee in the ACC’s Constitution, which explicitly refers to this payment as “liquidated damages.”[25] Aware of this, the ACC argues that labels aside, the fee, in substance, operates as an alternative means of performance.[26]
For this alternate performance theory to work, North Carolina law must govern, as the North Carolina Supreme Court has explained that contractual forfeiture or payment provisions are not necessarily triggered by breach.[27] Although other states have adopted a similar theory, the ACC’s motion does not cite any Florida case characterizing contractual provisions that look like liquidated damages penalties as, in actuality, alternative means of performance.[28] This means that the ACC has to press upon the North Carolina court that North Carolina law, and not Florida law, governs. The ACC asserts that North Carolina law applies because North Carolina was the place of execution of the Grant of Rights, the last act of execution occurring in North Carolina when the ACC’s Commissioner accepted and executed the contract.[29]
Conclusion: A Possible Pathway to the Big Ten or SEC
FSU would have liked its home state to be the arbiter of this battle. That may still happen, if it can come up with a way to satisfy personal jurisdiction under Florida’s long-arm statute. This may not be easy, because outside of the citizenship of two members, it is unclear what contacts the conference has with Florida. In the meantime, the North Carolina court seems to buy the argument that the ACC is the “natural plaintiff,” forced to bring a preemptive suit to stop FSU from reneging on a contract under which it reaped tens of millions in annual revenue for years.
That said, there might still be a resolution satisfactory to all parties. Clemson’s lawsuit provides an avenue through which the North Carolina court could uphold the Grant of Rights, yet avoid the significant revenue forfeiture to members upon exit. While FSU argued that the revenue forfeiture provision in the Grant of Rights was an unenforceable penalty, Clemson makes the distinct argument that a correct contractual interpretation of the agreement does not actually require such a forfeiture. According to Clemson, the language in the Grant of Rights stating that a member transfers its media rights revenue to the conference “regardless of whether such Member…remains a member of the Conference during the entirety of the Term,” only transfers the media rights to re-broadcast games, played while a member remained in the conference.[30] It does not transfer media rights revenues from games played after the member exits the conference.[31] If this is the proper interpretation of the Grant of Rights, then both FSU and Clemson could live happily under the agreement, even if they leave prior to the expiration of its term. As Clemson alleges in its suit, “Clemson does not dispute its grant of media rights to those pre-departure games if re-aired or reused in accordance with the terms of the ESPN Agreements, following any exit by Clemson from the ACC.”[32]
Convincing a court of the soundness of this interpretation is not a guarantee. The language of the agreement, which “irrevocably and exclusively” grants media revenues “during the entirety of the Term,” does not limit itself to re-broadcast games. Nonetheless, the argument’s appeal would be that the Grant of Rights stays in place, albeit on a modified interpretation, and FSU and Clemson are held to their contractual commitments. Further, while not forfeiting approximately $572 million in revenue to leave the ACC, FSU and Clemson still pay some exit price, namely the much smaller withdrawal fee under the ACC’s Constitution, which comes to about $140 million.[33] Although both FSU and Clemson challenge this fee in their lawsuits, their fire is directed at the Grant of Rights.
All this begs the question, is $140 million a reasonable price for entry into the Big Ten or SEC? The answer could deliver a pathway for the court (or the parties) to resolve the dispute in a manner that is fair to all.
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[1]$429 million is the revenue forfeiture under the Grant of Rights. On top of that, there is an approximately $130 million withdrawal fee under § 1.4.5 of the ACC’s Constitution, and a $13 million loss in unreimbursed broadcast fees. Florida State University Board of Trustees v. Atlantic Coast Conference, Circuit Court, Leon County, Florida, Case No. 23-CA-002860, Jan. 29, 2024, FSU Amended Complaint for Declaratory Judgment (hereinafter “FSU Amended Complaint”), ¶161.
[2] Clemson v. Atlantic Coast Conference, Cout of Common Pleas, Pickens County, South Carolina, Case No. 2024CP3900322, Mar. 19, 2024 (hereinafter “Clemson Complaint”).
[3] N.C. Gen. Stat. Ann. 1A-1, 42 (a) (“when actions involving a common question of law or fact are pending in one division of the court, the judge may…order all the actions consolidated”).
[4] Aioi Insurance Co. Ltd., v. Sabbah, 2005 WL 5190702 (N.C.Super. May 12, 2005) (consolidation appropriate “even though the actions are instituted by different plaintiffs against a common defendant, or by the same plaintiff against several defendants, when the causes of action grow out of the same transaction”).
[5] Whitehead, Jr. v. Blessed Oasis Pet Resort, LLC, 2018 WL 7254206, at *1 (N.C.Super. Aug. 31, 2018) (consolidation “necessary to avoid unnecessary costs to the parties, promote judicial economy, and avoid inconsistent verdicts”).
[6] ACC Constitution, § 1.6.2; Atlantic Coast Conference v. Board of Trustees of Florida State University,
Superior Court, Mecklenburg County, North Carolina, Case No. 23CV04918-590, Apr. 4, 2024, Order and Opinion on FSU’s Motion to Dismiss (hereinafter “Order on FSU’s Motion to Dismiss”), ¶43.
[7] Order on FSU’s Motion to Dismiss, ¶¶52, 53.
[8] Order on FSU’s Motion to Dismiss, ¶43.
[9] The court dismissed just one claim by the ACC against FSU for breach of fiduciary duty, finding that there was no fiduciary relationship between the conference and FSU’s Board. The substance of this single claim – i.e. that FSU breached the Grant of Rights in withdrawing before the end of the agreement’s term – survives in the remaining claims.
[10] Order on FSU’s Motion to Dismiss, ¶¶43-50.
[11] Order on FSU’s Motion to Dismiss, ¶¶58, 64-67.
[12] Order on FSU’s Motion to Dismiss, ¶¶72-73.
[13] Florida State University Board of Trustees v. Atlantic Coast Conference, Circuit Court, Leon County, Florida, Case No. 23-CA-002860, Jan. 29, 2024, ACC Motion to Dismiss, or, Alternative, to Stay (hereinafter, “ACC Motion to Dismiss”), p.9; FSU Amended Complaint, p.3.
[14] FSU Amended Complaint, ¶4.
[15] ACC Motion to Dismiss, p.6.
[16] Tallahassee Democrat, Judge Order FSU to amend lawsuit against ACC, April 22, 2024 (see https://www.tallahassee.com/story/sports/college/fsu/2024/04/22/fsu-acc-lawsuit-updates-florida-court/73373194007/).
[17] Order on FSU’s Motion to Dismiss, ¶85.
[18] Order on FSU’s Motion to Dismiss, ¶121.
[19] Order on FSU’s Motion to Dismiss, ¶122.
[20] ACC Motion to Dismiss, p.112
[21] Capital Wealth Advisors, LLC v. Cap. Wealth Advisors, Inc., 335 So. 3d 164, 166 (Fla. Dist. Ct. App. 2021), review denied, 2022 WL 2981775 (Fla. July 28, 2022) (citing United Am. Corp. v. Bitmain, Inc., 530 F.Supp.3d 1241, 1266 (S.D. Fla. Mar. 31, 2021).
[22] ACC Motion to Dismiss, pp.14-15.
[23] ACC Motion to Dismiss, pp. 17-20.
[24] ACC Motion to Dismiss, p. 19.
[25] ACC Constitution, § 1.4.5.
[26] ACC Motion to Dismiss, p. 18.
[27] Brenner v. Little Red Sch. House, Ltd., 302 N.C. 207, 214 (1981)] (prohibition on tuition refund not penalty as it did not measure recovery in the event of breach). Often, these provisions are but one bargained for contractual term, not a measure of recovery in the event of breach.
[28] ACC Motion to Dismiss, pp. 17-18.
[29] ACC Motion to Dismiss, pp. 15-16.
[30] Clemson Complaint, ¶62; Grant of Rights, ¶1.
[31] Clemson Complaint, ¶¶62, 93.
[32] Clemson Complaint, ¶62.
[33] Clemson Complaint, ¶76. FSU’s suit, commenced about a month before Clemson, alleges that this fee is $130 million. FSU Amended Complaint, ¶161.
