Those of our readers who are college basketball fans may remember the newspaper reports about Jim O’Brien (“O’Brien”), the former basketball coach at The Ohio State University (the “University”). The University terminated O’Brien’s employment in 2004 after he advised the University that in 1998 he made a $6,000 loan to the family of a player from Europe who was never eligible to play college basketball. The University considered the loan an egregious violation of the National Collegiate Athletic Association (“NCAA”) rules and, thus, a material breach of O’Brien’s employment contract. The University terminated O’Brien and he filed suit, alleging a breach of his contract which still had three years to run.
At trial, the University did not dispute that O’Brien made the loan for humanitarian reasons, that O’Brien was not motivated by a desire to gain any recruiting advantage in basketball, and that the loan recipient was not eligible to participate in intercollegiate athletics at the time of the loan because the recipient previously signed a contract with a pro team in Europe. The trial court also found that the loan and O’Brien’s failure to disclose the same were the only reasons for O’Brien’s termination.
O’Brien’s employment contract provided it could be terminated for cause. “Cause” was defined as a material breach of the contract by O’Brien or a violation by O’Brien of an applicable law, policy or regulation of the NCAA or the Big Ten Conference which results in the University being sanctioned. Based on the evidence presented at trial, the court held that O’Brien had not been terminated for cause. It awarded O’Brien damages in the amount of $2,494,972.83, pursuant to a contract provision that required the University to pay O’Brien his unpaid salary and benefits if he was not terminated for cause as defined in the contract. The University appealed the judgment.
In upholding the trial court’s decision, the Ohio Appellate Court noted that a “material breach” of contract is a party’s failure to perform an element of the contract that is “so fundamental to the contract” that the single failure to perform “defeats the essential purpose of the contract or makes it impossible for the other party to perform.” The Court then reviewed the factual findings of the trial court and determined that O’Brien had performed his responsibilities under his contract. It concluded that the loan was not a material breach thereof because it was not intended to obtain a recruiting advantage and did not substantially harm the University, since the player was not eligible to play college basketball.
Additionally, the Court held the loan did not violate an applicable law, policy or regulation of the NCAA or the Big Ten Conference, at least in part because, when the University reported O’Brien’s alleged 1998 violations in 2004, the four year statute of limitations instituted by the NCAA for such violation had expired. Thus, neither the NCAA nor Big Ten Conference ever imposed any sanctions on the University as required by O’Brien’s employment contract to constitute a material breach by O’Brien.
Contracts may not be cancelled with impunity for merely technical or immaterial violations. If you question whether a breach of a contract is material or wish to discuss your rights under a contract, either as an employer or employee, please telephone a member of the firm.