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The Regents of the University of California, on behalf of the Department of Intercollegiate Athletics on its Los Angeles campus (UCLA) has sued Under Armour for more than $200 million in damages. The complaint, filed in the U.S. District Court for the Central District of California, argues that a financially troubled Under Armour is seeking to avoid its financial responsibilities to UCLA and is using the COVID-19 pandemic as a pretext to cause an early termination to the parties’ sponsorship agreement.
Under Armour has sought to prematurely end its 15-year agreement with UCLA based on three separate grounds, but the main cause for termination is that a “Force Majeure Event” occurred, which relieved Under Armour from any further obligations under the agreement. The Force Majeure Event — decisions by the NCAA and Pac-12 Conference to pause certain athletic events due to the COVID-19 pandemic — allegedly occurred for more than 100 days, which was a key term in the contract. The “Force Majeure Clause” of the contract contains the following language:
“If a Force Majeure Event continues for more than one hundred (100) days, either Party may terminate this Agreement with immediate effect by written notice.”
Separately, the “Force Majeure Event” provision in the agreement states that the event must be beyond the commercially reasonable control of Under Armour and “render the performance of this Agreement by the affected Party either impossible or impracticable.” As such, a review of California law on the subject of impossibility and impracticability may become important if the case is not resolved by the parties early in the pending dispute.
UCLA’s legal counsel certainly knows that a major focus on those two words is forthcoming and used a portion of the complaint to highlight its position on the meaning that should be provided to the terms in the contract.
“Under Armour was not entitled to terminate the Agreement simply because COVID-19 caused some disruption for more than 100 days,” the complaint states. “Under Armour’s mere dislike of the Agreement’s economic implications during COVID-19 did not mean that its performance under the Agreement was impossible or impracticable.”
California has codified its law of impossibility in Cal. Civ. Code § 1511, which includes excuse for performance of an obligation when it is prevented or delayed by an “irresistible, superhuman cause, or by the act of public enemies of this state or of the United States, unless the parties have expressly agreed to the contrary.” This law may apply whether the performance was impossible or utterly impractical.
Under Armour’s biggest issue may be that it is bound by the specific language that it agreed to within the UCLA agreement. The analysis should not be based on whether COVID-19 rendered UCLA’s performance under the agreement either impossible or impracticable, but instead the allegedly affected party claiming that there was a Force Majeure Event. In this instance, it would be Under Armour tasked with the burden of showing that its own performance under the agreement (mainly, providing compensation to UCLA) was rendered impossible or impracticable. With a market cap of over $4.3 billion and continuing contractual relationships with other athletic departments, including Auburn and South Carolina, that would seem to be a tough argument for Under Armour to make. Those continuing relationships will likely be examined in determining whether the pandemic has truly caused an industry-wide impact for Under Armour, which appears to not be the case.
Ultimately, whether Under Armour’s performance was rendered impossible or impracticable should be a question of law for the court to decide as opposed to a jury, even though a jury demand was made by UCLA with the filing of its complaint.
Darren Heitner is the founder of Heitner Legal. He is the author of How to Play the Game: What Every Sports Attorney Needs to Know, published by the American Bar Association, and is an adjunct professor at the University of Florida Levin College of Law. You can reach him by email at heitner@gmail.com and follow him on Twitter at @DarrenHeitner.