Warning: Legal Analysis Ahead - Beilein's Buyout

A week or so ago, when it was finally official that Beilein was heading off to "greener" pastures in Michigan, the silver lining to that ominous rain cloud was his $2.5 million dollar "buyout" provision in his contract. Most fans felt we could use that money to improve various aspects of the athletic program or at least get some hookers for Hardesty's going away party. Well, not so much.

Apparently, no one is going to pay it unless court ordered. From, ugh, ESPN:

Beilein won't go on the record about his intentions in seeking legal counsel, but multiple sources have told ESPN.com that Beilein is trying to get the buyout reduced -- if not wiped out entirely. Pastilong said he wouldn't discuss anything more about the buyout, except that, "We expect the contract to be honored. A contract is a contract. [The buyout is for $2.5 million] and that's what the contract is for."

Well, not exactly.

The short story: This clause is potentially uneforceable (more on this below). If the judge finds that it IS enforceable, WVU gets $500,000/year ($2.5M). If the judge finds it unenforceable, then the liquidated damage clause is out, but Beilein is still on the hook for "damages", which, unfortunately here, seem to be minimal.

The long story: Beilein's buyout clause was not written particularly well. Beilein's buyout clause is technically what is called a liquidated damage clause. Liquidated damage clauses allow parties to specify in advance an estimated value of how badly a party would be damaged if the other party breached the contract. However, they're typically only enforceable if the contract provides that "the parties hereto hereby agree that in the event of a breach by either party that the nature of this Agreement would prevent an accurate measurement or estimation of the actual damages incurred by the nonbreaching party" and "that the parties hereto hereby agree that $xxx,xxx.xx is a fair and reasonable estimation of damages resulting for a breach and that the nonbreaching party shall be entitled to this amount in liquidated damages in the event of a breach." So, lets take a look, does Beilein's contact have this stuff:

Crap. Who drafted this thing? What? Some second year law student? Where's Cardi!? Regardless, the liquidated damage clause, i.e. buyout, is probably still enforceable. However, it faces two potential "uphill battles". First, a liquidated damage clause is only enforceable if actual damages are difficult to measure and the amount is found to be reasonable, i.e. $500,000 is a reasonable estimate of damages. That's why drafters typically include the "the parties agree that it will be hard to esitmate and that this is a reasonable amount" language. Unfortunately, that language is missing from Beilein's contract and so more open to review by a judge than if it had that language.

Second, there are other limitations on employment contracts. For instance, clauses that make it unreasonable or overly difficult for a former employee to pursue new employment can be striken from a contract if its found to be against the public policy encouraging the freedom of employment.

So, if this is actually litigated, WVU has to be concerned whether the "iffiness" of the liquidated damage clause and the prohibition against restricting future employment weighs so strongly against it that a judge rules it as unenforceable. While I find it unlikely, the potential exists for such a ruling. Consequently, WVU may have to decide whether to roll the dice and have the full amount enforced or settle for a smaller amount. And this, I imagine, is why Beilein is fighting it.

*This is not legal advice. This is only general legal information. Do not rely upon the information provided herein. This is also not a legal advertisement.

*More analysis in the comments. Please read on. Questions? Feel free to ask.