North Carolina Court of Appeals Rejects the University of Maryland’s Sovereign Immunity Defense

January 31, 2014

On November 19, 2013, the North Carolina Court of Appeals rejected the University of Maryland’s (“UM”) attempt to dismiss a lawsuit over the university’s planned migration from the Atlantic Coast Conference (“ACC”) to the Big Ten Conference later this year.[1]  In 2012, the ACC brought suit against UM in North Carolina state court seeking a declaratory judgment that a withdrawal payment provision in the ACC Constitution was a valid liquidated damages clause enforceable against the university.

  The ACC alleged that UM’s withdrawal from the ACC subjected the university to a mandatory penalty in the amount of $52,266,342.

In January 2013, UM filed a pre-answer motion to dismiss the ACC’s complaint for lack of personal jurisdiction.  Specifically, the university asserted that the trial court lacked jurisdiction based on the sovereign immunity of the State of Maryland.  Following briefing and a hearing on the matter, the trial court denied the UM’s motion.  In so doing, the trial court refused to extend comity (the practice among political entities to mutually recognize legislative, executive, and judicial acts) to UM’s claim of sovereign immunity in North Carolina’s courts.

That very month, The Board of Regents of the University System of Maryland unsuccessfully attempted to have the ACC’s lawsuit dismissed in the Circuit Court of Prince George’s County, Maryland on the ground that the courts of North Carolina enjoy “no jurisdiction over the sovereign State of Maryland and its public universities.”[2]  Judge Paul Davey stayed the matter pending the outcome of the North Carolina litigation.

Shortly thereafter, UM filed a notice of appeal from the order denying their motion to dismiss.  The ACC responded with its own motion to deny UM’s request for a stay of the trial court’s proceedings and asked the trial court to retain jurisdiction.  The trial court granted the ACC’s motion to retain jurisdiction.

In April 2013, UM filed a petition for the issuance of a writ of supersedeas in the North Carolina Court of Appeals seeking a stay of the trial court’s proceedings pending resolution of UM’s appeal.  The appellate court allowed the petition and stayed all proceedings in the court below pending the review of the interlocutory appeal.

UM argued that the common law principle of comity should apply.  In essence, UM argued that, as an agency of the State of Maryland, due the protections of sovereign immunity, it was immune from litigation in the State of Maryland, and, therefore, North Carolina, out of deference to the laws of its sister state, was also deprived jurisdiction over it. As without jurisdiction, a court cannot entertain a lawsuit.  The court of appeals agreed only in part.  It held “that rights acquired under the laws or judgments of a sister state will be given force and effect in North Carolina if they are not against public policy.”[3]  In other words, the court was not required to determine if Maryland law entitled UM to sovereign immunity.  Instead, the issue of consequence was whether North Carolina law afforded UM sovereign immunity.

Despite the fact that the court of appeals had recently extended sovereign immunity to the University of Virginia and dismissed it as a defendant in a civil case[4], the panel determined that an extension of immunity to UM would violate public policy.  Unlike the University of Virginia matter, a case which sounded only in tort, UM was alleged to have breached a contract.  The North Carolina Supreme Court, in the context of the sovereign immunity doctrine, previously used public policy to effectively waive the State of North Carolina’s sovereign immunity in causes of action grounded in contract.[5]  Relying on that precedent, the court of appeals held:

Accordingly, because the public policy of this state does not allow the State of North Carolina to avoid its obligations in contract, we cannot extend comity to Defendants’ claim of sovereign immunity.  Furthermore, because we find that the extension of comity in this case would violate public policy, we decline to consider—as would be required if we had reached the opposite conclusion—whether Defendants would be entitled to sovereign immunity as a matter of Maryland law.[6]

Defeated on appeal, but not in spirit, UM retaliated by filing a $157 million counterclaimagainst the ACC earlier this month in which it alleged, inter alia, that ACC member universities attempted to recruit two Big Ten universities to join the ACC.  UM’s counterclaim represents the latest punch thrown in this prolonged legal battle.