Pac-12 defeats end run around ‘poaching penalty’ antitrust suit
Alan Riquelmy
(CN) — An antitrust suit filed by the Pac-12 Conference survived a legal blitz this week.
U.S. Magistrate Judge Susan van Keulen's motion to dismiss denial keeps the “poaching penalty” suit alive, setting up a game plan for a case management conference later this year.
The Pac-12 filed suit last year against the Mountain West Conference, arguing its rival created an unfair scheduling agreement and termination fees that amounted to millions of dollars.
The complaint stems from the Pac-12’s loss of 10 of its 12 member schools in 2022 and 2023. It then entered a scheduling agreement with MWC, making a football schedule for its remaining two teams: Oregon State University and Washington State University.
That schedule called for a termination fee when a school leaves the MWC to join the Pac-12. When five schools did just that, the MWC said it was owed millions of dollars in fees.
The Pac-12, in its complaint, states four causes of action: a violation of the Sherman Act, California’s Cartwright Act, the state’s Unfair Competition Act and a claim that the contract is invalid because of unenforceable penalties.
The MWC argued the first two claims failed because the Pac-12 lacks antitrust standing and didn’t properly argue antitrust claims.
“The MWC concedes that the Pac-12 has satisfied the first prong by pleading an agreement,” van Keulen said in her ruling. “Nevertheless, the MWC argues that the Pac-12 has not established antitrust standing because it ‘has failed to allege a cognizable injury to competition or a market for such injury, let alone any nonspeculative harm to itself.’”
The judge found the MWC’s arguments unconvincing, noting it gave no basis for her to ignore the Pac-12’s claims of antitrust injury. The Pac-12 has said it was “desperate” and “had little leverage” when entering the scheduling agreement. Additionally, its claims of harm from the termination fees include both MWC schools joining the Pac-12 and the Pac-12 losing resources to compete for more schools.
Ruling on the argument that Pac-12 didn’t plead proper antitrust claims, the judge decided that it’s too early in the legal process to make that call.
Both sides have tried to fit the case into existing categories — for example, that it’s an employee poaching case. However, termination fees and the scheduling agreement contain unique aspects that don’t fit within the cases the parties have argued, van Keulen said. She said more development of a factual record is needed.
“Whether the Pac-12’s position on this issue ultimately prevails should be determined on the basis of a more fully developed record,” she added.
Turning to the Unfair Competition Act, van Keulen said that it prohibits unlawful, unfair or fraudulent business practices. The Pac-12 has argued the MWC tried to stifle competition through its termination fee in the scheduling agreement.
The MWC argued dismissal of an unfair business practice claim should occur because it overlaps with an unlawful business practice claim. Also, it said there were no antitrust violations.
Van Keulen ruled that the Pac-12 properly argued claims for antitrust violations and a violation of the state’s unfair competition law.
Lastly, the judge turned to the claim of unenforceable penalties.
The Pac-12 has called the termination fees “liquidated damages,” which are unenforceable penalties. The MWC countered that argument by saying even if they qualified as such damages, California law enforces them.
The MWC also argued the fees aren’t liquidated damages, as they don’t stem from the scheduling agreement.
For this claim, van Keulen again pointed to the need for the case to develop.
It’s a judge’s job to determine if an unenforceable liquidated damages provision exists. But making that decision on a partial record would be premature, she said.
Pivoting to the MWC’s second argument, the judge again said a better factual record is needed to determine the details of both parties’ arrangements.
Neither side could be reached for comment as of publication time.