Commonwealth Court overrules NCAA’s preliminary objections in case over Penn State fine money

By Jon Campisi | Sep 5, 2013

A Pennsylvania court is allowing a lawsuit initiated by a state legislator and

the commonwealth’s treasurer against the NCAA to proceed.

In a Sept. 4 opinion, the seven-member Commonwealth Court panel overruled preliminary objections that had been filed by attorneys representing the NCAA in a case brought by State Sen. Jake Corman and Pennsylvania Treasurer Robert McCord.

The plaintiffs seek the return of $12 million in fine money that Penn State University paid to the NCAA in relation to the Jerry Sandusky child sex-abuse scandal.

The money represented the first installment in an $60 million penalty levied against Penn State due to the school’s handling of the molestation case.

Corman, a Republican who represents a Centre County district, filed suit against the NCAA seeking an injunction preventing the association from dispersing or dissipating any of the fine money already paid by Penn State.

The senator went on to sponsor the Institution of Higher Education Monetary Penalty Endowment Act, which was ultimately passed by the General Assembly and signed by Gov. Tom Corbett, and was designed to keep the Penn State fine money within the commonwealth’s borders.

That money would be placed into the state’s treasury, hence McCord’s joining as a plaintiff in the case.

Lawyers for the NCAA opposed the move, arguing that the law passed by Pennsylvania legislators was unconstitutional.

“State governments can’t simply pass laws to rewrite private agreements and divert private money to their own coffers,” an NCAA attorney wrote earlier this year.

This week, following oral arguments in late June, the Commonwealth Court determined that the plaintiffs do have standing to sue, despite the NCAA’s assertions to the contrary.

The standing issue had been one matter presented by the NCAA’s attorneys in their preliminary objections to the plaintiffs’ second amended complaint, the record shows.

McCord, the treasurer, maintained that he has standing as the statutorily designated sole custodian of monies deposited into the fund created by the Endowment Act.

The court agreed on this point.

The NCAA argued that Corman lacks standing because the lawsuit “does not allege any genuine interference with Senator Corman’s legislative functions,” the preliminary objections read.

The Endowment Act, the defense argued, doesn’t confer upon Corman any personal interest in the matter “that is different from the stake that each citizen has in seeing the law observed.”

Corman, who chairs the Senate’s Appropriation’s Committee, has standing to sue, the court ruled, because the senator has “more responsibility under the Endowment Act beyond his legislative function because he has specific statutory obligations.”

The court next turned its attention to the NCAA’s argument that Penn State is an indispensable party that was joined to the litigation.

Again the court sided with the plaintiffs, determining that Penn State is not an indispensable party that should have been joined to the suit.

The judges disagreed with the NCAA’s contention that because the university is not a party to the action, the court doesn’t have subject matter jurisdiction.

The opinion states that while Penn State may have rights or interest “related” to the claim, it doesn’t appear that the school’s rights and obligation to deposit monies into an endowment fund to go toward childhood sexual abuse prevention programs would be affected by the outcome of the litigation.

“Thus PSU’s rights and interest are not ‘essential to the merits of the issue’ before this Court,” the opinion states.

In its third preliminary objection, the NCAA argued that there was no claim upon which relief could be granted, since, as defense lawyers contended, the NCAA wouldn’t be in violation of the Endowment Act until Penn State pays the penalty to the association.

NCAA lawyers argued that the association would not be in a position to demand payment from Penn State until its taskforce has established an endowment, hired a third-party administrator and established guidelines for how the endowment’s funds should be spent.

“The NCAA avers that these steps have not yet been taken because Plaintiffs’ legal maelstrom has made it impossible to proceed,” the court opinion noted.

The plaintiffs maintained that to the extent that the $12 million in fine money was set aside, removed from Penn State’s budget and awaits the NCAA’s further instruction, the installment has been paid or is “payable,” meaning legally enforceable.

“Therefore, accepting Plaintiffs’ allegations as true, it not appearing ‘with certainty that the law will not permit recovery,’ and resolving all doubt in favor of the non-moving party as we must, we hold that Count I of Plaintiffs’ Second Amended Complaint states a claim for which relief can be granted, and we overrule the NCAA’s third preliminary objection,” the judges wrote.

Lastly, the court determined that despite defense assertions to the contrary, the Endowment Act is, in fact, constitutional.

The NCAA has argued that the act violated the Takings Clause of both the U.S. and Pennsylvania Constitutions by seeking to confiscate funds from a private entity without just compensation.

The judges noted that while the fine money paid by Penn State was laid out in a consent decree signed by both the university and the NCAA, missing from that contract was any language that suggests the $60 million ever becomes the NCAA’s property.

“Instead, the Consent Decree unambiguously mandates that the fine be paid ‘into an endowment for programs preventing child sexual abuse and/or assisting the victims of child sexual abuse,’” the opinion states. “The Consent Decree does not contain a scintilla of language that suggests the NCAA will have ownership of or control over the fine paid by PSU.”

The judges wrote that to endorse the NCAA’s argument would require the court to speculate as to the intentions of the parties, “which is not its role.”

“Because the Consent Decree lacks any language evidencing that ownership of the fine transfers to the NCAA, and it is not the role of this Court to insert or alter terms of an agreement, the NCAA fails to satisfy its threshold burden of demonstrating that a valid property right has been affected and further Takings Clause analysis is unnecessary,” the court wrote.

Corman, the senator, in a statement praising the ruling said that the NCAA’s legal arguments were rejected on their merits, and now there would be “no reason for the NCAA to further delay this fine money from being used to help children in Pennsylvania.

“This money is going to make a tremendous impact in the Commonwealth and the NCAA needs to follow state law,” Corman stated.

The ruling was penned by Commonwealth Court Judge Anne E. Covey. Joining Covey in the opinion were Judges Bernard L. McGinley, Bonnie Brigance Leadbetter, Renee Cohn Jubelirer, Robert Simpson, and Patricia A. McCullough.

President Judge Dan Pellegrini filed a dissenting opinion in which he asserted his belief that the court should have granted the NCAA’s preliminary objection based on the plaintiffs’ failure to join Penn State as an indispensable party to the litigation.

Pellegrini said he would have dismissed the complaint because, in his view, Commonwealth Court lacks subject matter jurisdiction.

“Because PSU’s statutory and contractual liability with respect to funds in its possession are at the core of this case, PSU has a clear right or interest that is essential to the disposition of the issues and its interest is not currently represented by any of the other parties,” Pellegrini wrote. “PSU must be deemed to be an indispensable party in this case and due process requires its participation before any meaningful judicial relief may be granted.”

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