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National Collegiate Athletic Association v. Corbett

United States District Court, M.D. Pennsylvania

January 13, 2015

THOMAS W. CORBETT, JR., in his capacity as Governor of the Commonwealth of Pennsylvania, et al., Defendants

For National Collegiate Athletic Association, Plaintiff: Everett C. Johnson, James Scott Ballenger, LEAD ATTORNEYS, Latham & Watkins LLP, Washington, DC USA; Thomas W. Scott, LEAD ATTORNEY, Killian & Gephart, LLP, Harrisburg, PA USA.

For Thomas W. Corbett, Jr., in his capacity as Governor of the Commonwealth of Pennsylvania, Mark R. Zimmer, in his capacity as Chairman of the Pennsylvania Commission on Crime and Delinquency, Defendants: Linda Cadden Barrett, Office of General Counsel, Harrisburg, PA USA.

For Rob Mccord, in his capacity as Treasurer of the Commonwealth of Pennsylvania, Defendant: Christopher B. Craig, LEAD ATTORNEY, Commonwealth of PA Department of Treasury, Harrisburg, PA USA; Craig S. Schwartz, Commonwealth of Pennsylvania, Treasury Department, Harrisburg, PA USA.

For Eugene Depasquale, in his capacity as Auditor General of the Commonwealth of Pennsylvania, Defendant: Victoria S. Madden, PA Department of the Auditor General, Harrisburg, PA USA.

For Jake Corman, Intervenor Defendant: Joshua John Voss, Conrad O'Brien PC, Harrisburg, PA USA; Mark E. Seiberling, Conrad O'Brien Gellman & Rohn, P.C., Philadelphia, PA USA; Matthew H. Haverstick, Conrad O'Brien, Philadelphia, PA USA.

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Yvette Kane, United States District Judge.

Before the Court is Plaintiff National Collegiate Athletic Association's (" NCAA" ) motion for judgment on the pleadings (Doc. No. 58), and Defendant McCord's cross-motion for judgment on the pleadings (Doc. No. 74), joined by Defendant Zimmer. The motions have been fully briefed and are ripe for disposition. For the reasons that follow, the Court will grant Defendants' cross-motion for judgment on the pleadings and deny Plaintiff's motion for judgment on the pleadings as moot.


In this action, the NCAA challenges on constitutional grounds an enactment of the Pennsylvania legislature entitled the Pennsylvania Institution of Higher Education Monetary Penalty Endowment Act (" the Endowment Act," or " the Act" ) and seeks an order of this Court enjoining the law's enforcement. (Doc. No. 1.) Defendants State Treasurer Rob McCord and Commission on Crime and Delinquency Chairman Mark Zimmer, each in his official capacity, have defended the law's constitutionality.[1] (Doc. Nos. 48, 49.) In their cross-motion for judgment on the pleadings, Defendants urge the Court to decline Plaintiff's constitutional challenge based on the doctrines of issue and claim preclusion. (Doc. No. 74.) The factual predicate for this lawsuit is by now familiar, so the Court will recount only those facts with particular relevance to the present motions.

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A. The Contract

The NCAA is a membership-based private organization that sets standards for intercollegiate athletics, including college football. (Doc. No. 48 ¶ 10.) In addition to setting rules for student athletes, the NCAA's bylaws place within its purview " the broad spectrum of activities affecting [an] athletics program." (Doc. No. 1 ¶ ¶ 25-28.) With its broad authority, the NCAA asserts the power to regulate the behavior of administrators and coaches, and non-compliance may result in heavy penalties. (Id.) As an NCAA member, the Pennsylvania State University (" Penn State" ) is subject to enforcement actions for violations of NCAA rules. (Id. ¶ ¶ 21, 23, 28.) On November 4, 2011, the Attorney General of the Commonwealth filed criminal charges against Gerald A. Sandusky for sexual crimes against children, and against Penn State's Athletic Director and senior Vice President for failing to report allegations of child abuse and perjury. (Doc. No. 1 ¶ ¶ 29, 32.) Penn State commissioned an investigation into the abuse and the response of its athletics department and administration to it. (Id. ¶ ¶ 32-34; Doc. Nos. 48 ¶ ¶ 32-34; 49 ¶ ¶ 32-34.) The resulting report, widely known as the Freeh Report, identified key failures on the part of university officials. (Doc. Nos. 1 ¶ 35; 48 ¶ 50; 49 ¶ 50.) To settle the question of sanctions, the NCAA and Penn State entered into a contract on July 23, 2012, wherein the university agreed to certain punitive actions. (See Doc. No. 1-4.) The contract is styled as a " Binding Consent Decree Imposed by the [NCAA] and Accepted by [Penn State]," but the document memorializes a private contract between a private association and a state-related university.[2] (See id.) The contract includes findings and conclusions drawn principally from the Freeh Report, including an enumeration of various NCAA rules that Penn State administrators violated. (Doc. No. 1-4 at 2-4.) The consent decree itemizes punitive sanctions imposed upon the university: (1) a $60 million fine; (2) a four-year ban on post-season football competition; (3) a four-year reduction in athletic scholarships; (4) a five-year " probation; " (5) the vacation of all Penn State football victories from 1998 to 2011; (6) the forfeiture of measures designed to retain student-athletes; and (7) the continued possibility of NCAA sanctions against individuals. (Id. at 5-6.)

The present litigation concerns disposition of the monetary penalty. The consent decree provides for payment of the fine " into an endowment for programs preventing child sexual abuse and/or assisting the victims of child sexual abuse" in annual installments of twelve million dollars for five years. (Id.) By the terms of the contract, no endowment funds may be used " to fund programs at the University," and no " sponsored athletic team" can be " reduced or eliminated" as part of Penn State's payments. (Id.) The consent decree itself is not explicit as to the logistics of the endowment's formation or governance. (See id.) The terms of the contract are also silent as to the geographic scope of the resulting endowment, except insofar as no Penn State program can directly benefit from it. (Id.) Then-Penn State President Rodney Erickson released a statement on the day he signed the consent decree, indicating that through the NCAA-imposed fine, Penn State would " become a national leader to help victims

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of child sexual assault and to promote awareness across our nation." (Doc. No. 59-4.) The NCAA alleges that on September 18, 2012, the NCAA convened the Child Sexual Abuse Endowment Task Force, whose membership includes at least two Penn State officials, to create and manage the resulting endowment. (Doc. No. 1 ¶ ¶ 45, 47.) According to the NCAA, the task force also includes members from national non-profit organizations, other NCAA members, and the federal government. (Id. ¶ ¶ 45-46) The NCAA also quotes another Penn State press release: " '[all endowment funds will] flow to programs designed to prevent child sexual abuse or assist the victims of child sexual abuse nationwide.'" (Id. ¶ 47.) Defendants deny that the consent decree requires the formation of an endowment task force, and they maintain that the consent decree " is silent as to the structure of the endowment, its control, or any other features." (Doc. Nos. 48 ¶ ¶ 45-48; 49 ¶ ¶ 46-48.) To date, Penn State has paid $12 million into an account scheduled to be transferred into the endowment. (Id. ¶ 48; Doc. No. 49 ¶ 48.) In the consent decree, the presidents of the NCAA and Penn State agreed that the contract could be modified or clarified in the future through their mutual written assent. (Doc. No. 1-4 at 8-9.)

B. The Endowment Act

On December 28, 2012, state Senator Jake Corman published his intent to introduce a state senate bill requiring all endowment funds to " be distributed for the benefit of the state and its residents." (Doc. No. 1-3.) The bill's purpose was " to impact the $60 million financial penalties placed upon the Penn State University." (Id.) Senator Corman voiced his intent to keep endowment funds in Pennsylvania through a memorandum to other state senators. (Id.) To that end, Senator Corman introduced the senate bill later enacted as the Institution of Higher Education Monetary Penalty Endowment Act of 2013, 24 P.S. § § 7501-05, commonly known as the Endowment Act. (See id.) Governor Corbett signed the measure into law on February 20, 2013 to take immediate effect. See 24 P.S. § 7503.

The Endowment Act applies to public colleges and universities that enter into punitive agreements with " governing bodies" to pay large monetary penalties in installments. Id. § § 7502-03. When the school agrees to a fine of more than $10 million to be paid " over a time period in excess of one year," and when the language of the agreement identifies " specific purposes" for which the fine money will be used, the law requires that the fine be deposited into a state-administered endowment, notwithstanding the language of the agreement or any intent of the signatories. See id. § 7503(a). A governing body is defined as an entity with which a public college or university is associated and that has the authority to impose monetary penalties on the school. Id. § 7502. The resulting state-administered endowments are to be separate funds within the state treasury disbursed by the Pennsylvania Commission on Crime and Delinquency (the " Commission" ). Id. § § 7502-03. The state treasurer is directed to act in a fiduciary capacity as custodian of the fund and to invest the money in accordance with Pennsylvania's prudent investor guidelines. See id. § 7503(b). The Act provides limits on annual expenditures for endowments that will exist for five years or more. Id. § 7503(b)(5). Absent an explicit contrary statement in the punitive agreement, the Commission is directed to expend endowment funds exclusively " within this Commonwealth for the benefit of the residents of this Commonwealth." Id. § 7503(b)(4). In effect, signatories

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have no authority to set up, manage, invest, or otherwise control the money from covered monetary fines beyond designating a specific purpose and specifying if they desire the money to leave the state.

C. Judicial Proceedings

On February 20, 2013, the day that the Endowment Act became law, the NCAA invoked federal jurisdiction by filing a complaint with this Court. (Doc. No. 1.) The NCAA is seeking both a declaration that the Endowment Act violates the United States Constitution and an injunction barring application of the Endowment Act to the consent decree monetary penalty. (Id.) The NCAA argues that the Act is ...

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