Vanderbilt University v. DiNardo
174 F.3d 751 (1999)
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Rule of Law:
A liquidated damages clause in an employment contract is enforceable if it represents a reasonable forecast of damages anticipated from a breach at the time of contracting, especially when actual damages, such as harm to an athletic program's stability and reputation, are difficult to ascertain.
Facts:
- On December 3, 1990, Vanderbilt University and Gerry DiNardo executed a five-year employment contract for DiNardo to serve as head football coach.
- The contract stated that DiNardo's long-term commitment was of the 'essence' to the university's desire for a stable football program.
- The contract contained a reciprocal liquidated damages clause requiring DiNardo to pay Vanderbilt his remaining net salary if he left early for another institution; this was included after DiNardo's counsel negotiated it down from gross salary.
- On August 17, 1994, Vanderbilt's Athletic Director, Paul Hoolahan, presented DiNardo with a two-year contract extension (the 'Addendum'), which DiNardo signed.
- When signing the Addendum, DiNardo told Hoolahan, 'Larry [DiNardo's brother and attorney] needs to see a copy before this thing is finalized,' to which Hoolahan agreed.
- Following the signing, DiNardo publicly stated he was 'excited' about the extension, and it was reported in the newspaper.
- In November 1994, Vanderbilt gave DiNardo permission to speak with Louisiana State University (LSU) about its head coaching position.
- On December 12, 1994, DiNardo resigned from Vanderbilt to become the head football coach for LSU.
Procedural Posture:
- Vanderbilt University filed a breach of contract action against Gerry DiNardo in Tennessee state court.
- DiNardo removed the action to the United States District Court for the Middle District of Tennessee.
- Both parties filed cross-motions for summary judgment.
- The district court granted summary judgment for Vanderbilt, finding the liquidated damages clause and the contract addendum enforceable.
- The district court entered a judgment against DiNardo for $281,886.43.
- DiNardo, as appellant, appealed the judgment to the United States Court of Appeals for the Sixth Circuit.
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Issue:
Does a liquidated damages clause in a university head football coach's employment contract, which requires the coach to pay his remaining net salary for the term of the contract if he resigns to take another job, constitute an unenforceable penalty under Tennessee law?
Opinions:
Majority - Gibson, J.
No, the liquidated damages clause does not constitute an unenforceable penalty. The provision is a reasonable estimate of damages that were difficult to quantify at the time the contract was formed. The parties expressly recognized that DiNardo's long-term commitment was essential for program stability, recruiting, and public support, and that his premature departure would cause intangible damages beyond the mere cost of hiring a replacement. Using DiNardo's remaining net salary was a reasonable formula because the damages were tied to the length of his commitment, and the provision was reciprocal and the product of negotiation. However, a genuine issue of material fact exists as to whether the contract Addendum was enforceable, as its finalization may have been contingent on the approval of DiNardo's attorney, a condition that may not have been satisfied.
Dissenting - Nelson, J.
Yes, the liquidated damages clause constitutes an unenforceable penalty. The provision was designed to punish DiNardo for taking another job, not to reasonably estimate Vanderbilt's losses. This is evident for three reasons: 1) the clause only triggers if DiNardo takes another coaching job, though Vanderbilt's damages would be identical if he resigned for any other reason; 2) the damage formula, based on the number of years left on the contract and his take-home pay, bears no rational relationship to the university's actual anticipated damages; and 3) there is no evidence the parties attempted to calculate a reasonable estimate of the university's probable loss. The case should be remanded for a determination of Vanderbilt's actual damages.
Concurring - Clay, J.
No, the liquidated damages clause is enforceable, and I concur with the majority on that point. However, I dissent from the majority's conclusion that the Addendum's enforceability is a question of fact. Even if attorney approval was a condition precedent, it was satisfied as a matter of law by the attorney's failure to object within a reasonable time. Both Vanderbilt and DiNardo acted in reliance on the extension, making public announcements to quell rumors of instability and to aid recruiting. Given this public reliance and DiNardo's own expression of happiness with the deal, the attorney's silence constituted acceptance, making the Addendum a binding contract.
Analysis:
This case solidifies the enforceability of liquidated damages clauses in high-profile employment contracts, particularly in collegiate sports where continuity is highly valued. The court's willingness to recognize intangible damages—such as harm to recruiting, alumni relations, and program stability—as a valid basis for such clauses sets a significant precedent. It affirms that parties can contractually price the value of a long-term commitment, provided the agreed-upon amount is a reasonable forecast at the time of contracting. This decision gives institutions greater power to protect themselves from the disruptive and difficult-to-quantify costs associated with the departure of key personnel.
