Vanderbilt v. Gerry DiNardo

Facts: On December 3, 1990, Vanderbilt and DiNardo executed an employment contract hiring DiNardo to be Vanderbilt’s head football coach. On August 14, 1994, Paul Hoolahan, Vanderbilt’s Athletic Director, went to Bell Buckle, Tennessee, where the football team was practicing, to talk to DiNardo about a contract extension. In November 1994, Louisiana State University contacted Vanderbilt in hopes of speaking with DiNardo about becoming the head football coach for L.S.U. Hoolahan gave DiNardo permission to speak to L.S.U. about the position. On December 12, 1994, DiNardo announced that he was accepting the L.S.U. position. Vanderbilt sent a demand letter to DiNardo seeking payment of liquidated damages under section eight of the contract. Vanderbilt believed that DiNardo was liable for three years of his net salary: one year under the original contract and two years under the Addendum. DiNardo did not respond to Vanderbilt’s demand for payment.

History: Vanderbilt brought the action against DiNardo for breach of contract. DiNardo removed the action to federal court, and both parties filed motions for summary judgment. The district court held that section eight was an enforceable liquidated damages provision, not an unlawful penalty, and that the damages provided under section eight were reasonable. The court held that Vanderbilt did not waive its contractual rights under section eight when it granted DiNardo permission to talk to L.S.U. and that the Addendum was enforceable and extended the contract for two years. The court entered judgment against DiNardo for $281,886.43. Dinardo appeals to U.S. District court.

Issues: Is section 8 of the contract an enforceable liquidated damage provision and not an unlawful penalty under Tennessee law and did Vanderbilt waive its right to liquidated damages? Was the Addendum to the contract enforceable? Was the Addendum not a valid and binding contract?

Rules of Law: In the case both breach of contract and liquidation damage clause was used. A term providing for liquidated damages will be enforceable only if damages would be difficult or impossible to prove or calculate at the time of breach and if the liquidated damages constitute a reasonable estimate of either the anticipated or the actual loss from breach. If damages would be difficult or impossible to prove or calculate if a liquidated damages term is not consistent with both of these requirements it would be labeled a “penalty” and will be unenforceable.

Analysis: DiNardo first claims that section eight of the contract is an unenforceable penalty under Tennessee law and that Vanderbilt waived its right to liquidated damages when it granted DiNardo permission to discuss the coaching position with L.S.U. Hoolahan gave DiNardo permission to talk to L.S.U. about their coaching position. He did not authorize DiNardo to terminate his contract with Vanderbilt. The employment contract required DiNardo to ask Vanderbilt’s athletic director for permission to speak with another school about a coaching position. DiNardo could explore other coaching positions, and indeed even leave Vanderbilt, subject to the terms of the liquidated damage provision.

Secondly DiNardo says that Addendum to the contract was not enforceable The district court concluded that the Addendum was enforceable as a matter of law because the parties acted as though the contract had been extended and because Larry DiNardo never objected to the Addendum.

Finally, DiNardo claims that the Addendum did not become a binding contract, and therefore, he is only liable for the one year remaining on the original contract, not the three years held by the district court. District court’s judgment that the contract contained an enforceable liquidated damage provision, and we affirm the portion of the judgment reflecting damages calculated under the original five-year contract. The district court’s judgment concluding that the Addendum was enforceable as a matter of law.

Conclusion: The court held that the damage clause was enforceable and reasonable and ordered the former coach to pay for the damages.