UCLA Athletics can proceed with its lawsuit against Under Armour after the Baltimore brand backed out of a record $280 million contract to outfit athletes, a judge ruled Wednesday.
The Baltimore-based sports apparel brand had asked Los Angeles County Superior Court to dismiss UCLA’s breach-of-contract lawsuit that seeks at least $200 million in damages.
“Despite Under Armour’s expensive legal maneuvers, UCLA and fair play won today,” said Mary Osako, UCLA vice chancellor of strategic communications, in a statement Thursday.
Under Armour declined to comment, saying the company does not discuss litigation.
Last October, Under Armour sought to strike portions of UCLA’s lawsuit and argued for dismissal, saying there is no legal basis for the lawsuit.
The brand said it did not breach a 15-year contract terminated amid the coronavirus pandemic and the resulting disruption to college sports, arguing in an October court filing that “COVID-19 upended this deal.”
A tentative ruling had been issued and was affirmed in Thursday’s hearing.
The ruling said Under Armour failed to show it was allowed to end the UCLA contract under “force majeure,” or an event beyond the company’s or university’s reasonable control that makes the agreement impossible or impractical. The company had argued it was justified in invoking the clause after COVID-19 disrupted college sports and prevented the UCLA baseball team from playing more than half its games.
Under Armour failed to “clearly and affirmatively establish that the pandemic rendered it impossible or impracticable for Under Armour or UCLA to perform,” the ruling said. “At best, [documents] establish the existence of a pandemic and the public response thereto. They do not establish the impact of the pandemic on Under Armour’s or UCLA’s ability to perform under the agreement.”
The court said it therefore was unable to determine whether Under Armour’s right to terminate under force majeure was triggered by the pandemic.
Superior Court Judge H. Jay Ford III also rejected Under Armour’s argument that the agreement allowed it to terminate if a UCLA core team misses at least half of its scheduled games during the regular season. The court found that clause should be triggered only if UCLA is suspended or barred from participating in games.
UCLA had amended its lawsuit to add that Under Armour misled the school about the company’s financial performance when the sponsorship deal initially was negotiated beginning in 2015. The university cited a settlement announced in May in which Under Armour paid $9 million to settle federal regulators’ charges that it misled investors about its sales growth in 2015 and 2016 to meet analysts’ revenue targets.
The U.S. Securities and Exchange Commission said in announcing the settlement that the company “pulled forward” a total of $408 million in existing product orders that customers, such as retailers, had requested be shipped in future quarters. The brand continued the practice for six consecutive quarters beginning in the third quarter of 2015, the federal agency said. Under Armour had confirmed in November 2019 that its accounting methods were being investigated by both the SEC and the U.S. Department of Justice.
The SEC order said Under Armour attributed its revenue growth during those quarters to factors such as growth in training, running, golf and basketball, without disclosing the “pull forward” practices. Increasing reliance on these practices raised uncertainty as to whether the company would meet sales goals for future quarters, the SEC order said.
UCLA’s Osako said in a previous statement that the SEC probe showed Under Armour covered up slowing sales and misled the university about its strong financial position to persuade the school to sign a massive sponsorship deal.
In her statement Thursday, Osako said the university was gratified that the court cleared the way for the case.
“The story of Under Armour’s corporate shenanigans and broken promises that left our student-athletes and the Bruin community out to dry is one that deserves to be told,” she said.