Court Opinion

ID: 9492100
Source: CourtListenerOpinion
Date Created: 2023-08-05 14:32:07.213169+00
Date Added: 2024-06-11T17:55:06.659019
License: Public Domain

DAVID A. NELSON, Circuit Judge,
concurring in part and dissenting in part.
If section eight of the contract was designed primarily to quantify, in an objectively reasonable way, damages that the university could be expected to suffer in the event of a breach, such damages being difficult to measure in the absence of an agreed formula, the provision is enforceable as a legitimate liquidated damages clause. If section eight was designed primarily to punish Coach DiNardo for taking a job elsewhere, however, the provision is a penalty unenforceable under Tennessee law. My colleagues on the panel and I are in agreement, I believe, on both of these propositions. We disagree, however, as to section eight’s primary function.
It seems to me that the provision was designed to function as a penalty, not as a liquidation of the university’s damages. Insofar as the court holds otherwise, I am constrained to dissent. In all other respects, I concur in Judge Gibson’s opinion and in the judgment entered pursuant to it.
My principal reasons for viewing section eight as a penalty are these: (1) although the damages flowing from a premature resignation would normally be the same whether or not Coach DiNardo took a job elsewhere, section eight does not purport to impose liability for liquidated damages unless the coach accepts another job; (2) the section eight formula incorporates other variables that bear little or no relation to any reasonable approximation of anticipated damages; and (3) there is no evidence that the parties were attempting, in section eight, to come up with a reasonable estimate of the university’s probable loss if the coach left. I shall offer a few words of explanation on each of these points.
Section eight does not make Coach DiNardo liable for any liquidated damages at all, interestingly enough, unless, during the unexpired term of his contract, he “is employed or performing services for a person or institution other than the University.... ” But how the coach spends his post-resignation time could not reasonably be expected to affect the university’s damages; should the coach choose to quit in order to lie on a beach somewhere, the university would presumably suffer the same damages that it would suffer if he quit to coach for another school. The logical inference, therefore, would seem to be that section eight was intended to penalize the coach for taking another job, and was not intended to make the university whole by liquidating any damages suffered as a result of being left in the lurch.
This inference is strengthened, as I see it, by a couple of other anomalies in the stipulated damages formula. First, I am aware of no reason to believe that damages arising from the need to replace a prematurely departing coach could reasonably be expected to vary in direct proportion to the number of years left on the coach’s contract. Section eight, however, provides that for every additional year remaining on the contract, the stipulated damages will go up by the full amount of the annual take-home pay contemplated *761under the contract. Like the “other employment” proviso, this makes the formula look more like a penalty than anything else.
Second, the use of a “take-home pay” measuring stick suggests that the function of the stick was to rap the coach’s knuckles and not to measure the university’s loss. Such factors as the number of tax exemptions claimed by the coach, or the percentage of his pay that he might elect to shelter in a 401(k) plan, would obviously bear no relation at all to the university’s anticipated damages.
Finally, the record before us contains no evidence that the contracting parties gave any serious thought to attempting to measure the actual effect that a premature departure could be expected to have on the university’s bottom line. On the contrary, the record affirmatively shows that the university did not attempt to determine whether the section eight formula would yield a result reasonably approximating anticipated damages. The record shows that the university could not explain how its anticipated damages might be affected by the coach’s obtaining employment elsewhere, this being a subject that the draftsman of the contract testified he had never thought about. And the record shows that the question of why the number of years remaining on the contract would have any bearing on the amount of the university’s damages was never analyzed either.
In truth and in fact, in my opinion, any correspondence between the result produced by the section eight formula and a reasonable approximation of anticipated damages would be purely coincidental. What section eight prescribes is a penalty, pure and simple, and a penalty may not be enforced under Tennessee law. On remand, therefore, in addition to instructing the district court to try the factual questions identified in Judge Gibson’s opinion, I would instruct the court to determine the extent of any actual damages suffered by the university as a result of Coach DiNar-do’s breach of his contract. Whether more than the section eight figure or less, I believe, the university s actual damages should be the measure of its recovery.