In April 2008, Gene Ford (“Ford”) and Kent State University (“KSU”) executed an employment agreement making Ford the head men’s basketball coach at KSU for a period of four years with an option for a fifth year. The contract contained a liquidated damages provision that stated:
Gene A. Ford recognizes that his promise to work for the University for the entire term of this four (4) year contract is of the essence of this contract with the University. Gene A. Ford also recognizes that the University is making a highly valuable investment in his continued employment by entering into this contract and its investment would be lost were he to resign or otherwise terminate his employment with the University prior to the expiration of this Contract. Accordingly, he will pay to the University as liquidated damages an amount equal to his base and supplemental salary, multiplied by the number of years (or portion(s) thereof) remaining on the contract.
In April 2010, Ford and Kent State renegotiated and executed a new employment agreement for a term of five years that increased his salary and supplemental salary by a total of $100,000.00 for a total salary of $300,000.00. In March 2011, Ford left his employment at KSU and accepted the same position at Bradley University for a total annual salary of $700,000.00.
The issues to be determined in the case are whether a contract with a liquidated damages clause is unenforceable when it requires a breaching university coach to pay his salary for each year remaining under the contract, when there is limited evidence of actual damages, and whether damages in such a case can include only the salary of a replacement coach. Ford argued the liquidated damages provision is punitive in nature to deter him from accepting other employment. The test in Ohio to determine whether a liquidated damages provision is enforceable comes from the Supreme Court of Ohio’s decision in Samson Sales, Inc. v. Honeywell, Inc. and states:
Where the parties have agreed on the amount of damages, ascertained by estimation and adjustment, and have expressed this agreement in clear and unambiguous terms, the amount so fixed should be treated as liquidated damages and not as a penalty, if the damages would be (1) uncertain as to amount and difficult of proof, and if (2) the contract as a whole is not so manifestly unconscionable, unreasonable, and disproportionate in amount as to justify the conclusion that it does not express the true intention of the parties, and if (3) the contract is consistent with the conclusion that it was the intention of the parties that damages in the amount stated should follow the breach thereof.
The trial court granted summary judgment in favor of KSU. The Court of Appeals analyzed each factor as follows:
1. Whether the damages are uncertain as to the amount and difficult to prove.
The difficulty of ascertaining the damages resulting from Ford’s breach were difficult to determine, if not impossible. The testimony and evidence showed the departure of the men’s basketball coach may result in “a decrease in ticket sales, impact the ability to successfully recruit players and community support for the team, and require a search for both a new coach and additional coaching staff.” The court compared this case to Vanderbilt University v. DiNardo in which Vanderbilt’s former football coach argued the reciprocal liquidated damages provision in his contract was a penalty. The DiNardo court rejected this argument as did this court. In Ford’s case, his contract stated the liquidated damages provision was based on KSU’s “investment in [Ford’s] continued employment.” The court also noted Ford has unique abilities such as connecting with the community and obtaining donations. The court concluded these damages cannot be easily proven.
2. Whether the contract as a whole is unconscionable.
A contract is unconscionable if it did not result from real bargaining between the parties who had freedom of choice and understanding and ability to negotiate in a meaningful fashion. The court noted Ford was not an unsophisticated party and testimony indicated he consulted an attorney and/or agent prior to signing the second employment agreement.
Additionally, Ford argued KSU did not establish actual damages. The party seeking liquidated damages need not prove the actual damages resulted from a breach. The court stated even if the damages to KSU were based solely on hiring a replacement coach, finding a coach of a similar skill and experience level as Ford would have increased costs. Such costs include a decrease in ticket sales, coaching search costs, and additional sums.
3. Whether the contract is consistent with the fact that the parties intended the damages follow the breach.
The provision itself in this case is not ambiguous and it is clear it would apply if the contract was breached by either party. Testimony was presented that such clauses, although they differ from contract to contract, are common for university coaches. The court concluded nothing indicated the clause did not represent the parties’ intent, especially given that testimony demonstrated Ford was aware of the provision and even attempted to change it during negotiations prior to signing the second contract.
4. Whether the liquidated damages clause is unenforceable because it acted as a penalty to punish him for breaking his promise.
Whether the subject provision constitutes an illegal penalty provision or a liquidated damages provision depends on the facts and circumstances of each case. While there was some testimony the clause would deter Ford from leaving, this would be true of liquidated damages clauses in almost every contract, since an award of damages deters a breach. It appears that at least some losses were contemplated prior to the inclusion of this provision in the contract. The court concluded that the liquidated damages provision at issue is not a penalty.
The court upheld the liquidated damages provision and concluded the trial court properly accessed judgment in favor of KSU in the amount of $1,200,000.00.