HARRISBURG, Pa. (CN) - Pennsylvania on Wednesday passed a law intended to steal $60 million from a Penn State University fund to help victims of child sex abuse and dump it into the state treasury, the NCAA claims in Federal Court.
The National Collegiate Athletic Association sued Gov. Thom Corbett Jr. and three other state officials, claiming the state's money-grab, "Act No. 1 of 2013," violates the Constitution's Contracts and Commerce Clauses.
The money stems from Penn State's settlement of the Jerry Sandusky sex abuse scandal.
Pennsylvania calls its new law the Institution of Higher Education Consent Decree Endowment Act aka "the Act of February 20, 2013, Act No. 1 of 2013." It allows the state to grab the $60 million that Penn State will put into the fund for victims of child abuse, and give it to the defendant state treasurer. The NCAA filed its lawsuit the day the act was codified into law.
The NCAA claims that Act No. 1 is intended "to disrupt interstate commerce by attempting to legislate where private parties spend their money, and to confiscate funds intended for the victims of child sexual abuse nationwide to be used solely for the benefit of Pennsylvania residents, at the direction of Pennsylvania officials."
It adds: "The Act, by its terms, purports to permanently appropriate to the Pennsylvania Treasury the full $60 million dollar fine, even though the contract requires that the penalty be paid into the NCAA's endowment."
Gov. Corbett sued
the NCAA in January, claiming it "exploited" the Sandusky child abuse scandal to impose "crippling" sanctions on Penn State University.
Corbett said in his complaint that the NCAA was using the case of the serial child molester to "force the university to endure harsh, unjustified, and unprecedented punishments."
After an investigation led by former FBI Director Louis Freeh, Penn State entered into a consent degree with the NCAA. "Among other sanctions, the NCAA imposed, and Penn State agreed to pay, a $60 million fine, 'equivalent to the approximate average of one year's gross revenue from the Penn State football program, to be paid over a five-year period beginning in 2012 into an endowment for programs preventing child sexual abuse and/or assisting the victims of child sexual abuse,'" the NCAA says in its complaint, citing the consent decree.
The NCAA adds: "Upon information and belief, Penn State has already paid $12 million into an account to be transferred to the NCAA's endowment when it is established.
"Upon information and belief, Penn State has the financial ability to pay the full $60 million fee without using state-appropriated funds.
"Penn State has made clear that no state funds will be used for the endowment."
Penn State is able to do this, the NCAA adds, because its disgraced football program is so profitable: "in 2011-2012, the Penn State football team generated $50,223,498 of income to Penn State, but only $17,205,605 of expenses. The football team produced a profit to Penn State of $33,017,893."
In its complaint, the NCAA says that "authority to dispose of university property is not within the purview of the Commonwealth, and that Penn State exhibits 'characteristics of a nonprofit corporation chartered for educational purposes - not an agency of the commonwealth.'"
NCAA members "agree that a member institution that commits a 'major violation' of the NCAA Constitution or Bylaws shall receive a severe penalty, which may include ... '[p]rohibition against specified competition in [a] sport ... or a '[f]inancial penalty," according to the complaint.
The NCAA appointed a child abuse task force in September 2012, to oversee the endowment to be funded by fines from the consent decree.
Three months later, state Sen. Jake Corman circulated a memo to other senators with the title, "NCAA Fine Endowment for Pennsylvania."
"As Senator Corman's memorandum and the Act's provisions make clear, the obvious and explicit purpose of the Act was to seize the NCAA's fine and redirect it only to Pennsylvania causes," the complaint states.
Act No. 1 "provides that money that an institution of higher education is obligated to pay to a private endowment or other third party instead becomes the property of the Commonwealth of Pennsylvania," the complaint states.
"The Act directs the Pennsylvania Commission of Crime and Delinquency to 'expend the money of the endowment' ... [and] does not permit the NCAA, the NCAA Task Force, or any third party chosen by them to direct that the endowment's funds be expended upon beneficiaries of their choosing."
Sorry, the NCAA says: "Funds paid to the NCAA's endowment are not owned by the Commonwealth of Pennsylvania.
"The Act, by its terms, purports to permanently appropriate to the Pennsylvania Treasury the full $60 million fine, even though the contract requires that the penalty be paid into the NCAA's endowment.
"By directing Pennsylvania officials to collect and take payments to which it is not entitled, the Act amounts to taking of private property without just compensation."
The NCAA seeks declaratory judgment that Act No. 1 is unconstitutional, and an injunction preventing its enforcement, plus attorneys' fees and costs.
It is represented by Thomas Scott with Killian & Gephart in Harrisburg.