Sports Law Development of the Week: Seventh Circuit Deals Another Blow to NCAA Transfer Rule Challenge

By: Cameron Miller

Rules restricting the ability of college athletes to transfer between institutions are amongst the oldest in intercollegiate sports. In fact, residency requirements—which prevent an athlete from competing at their new school until they have attended the institution for a set period—were first promulgated in the late nineteenth century (several years before the NCAA was formed). Residency rules were included in the NCAA’s original bylaws, and have governed player transfers ever since.

In recent years, college players—and one law firm, in particular—have mounted a campaign to invalidate these restrictions on player movement. That firm, the Seattle-based Hagens Berman Sobol Shapiro, LLP, has represented three athletes (two football players and one basketball player) in their challenges to the NCAA’s transfer rules, which they claim violate antitrust law.

To date, these efforts have been largely unsuccessful. The first suit, Pugh v. NCAA, which targeted the NCAA’s year-in-residence rule (requiring athletes to complete an academic “year-in-residence” (two semesters or three quarters) at their new school before competing), was dismissed in federal court (Southern District of Indiana; 7th Circuit) in September 2016. There, Pugh alleged the year-in-residence requirement “functions as a penalty imposed upon Division I football players for switching schools” in violation of the Sherman Act. Pugh also claimed that, absent the requirement, school selection and player recruiting would be driven exclusively by determinations of value and fit and not constrained by artificial barriers like the residency rule. The NCAA’s bid for dismissal argued the year-in-residence requirement was a noncommercial eligibility rule and therefore presumptively precompetitive under precedent established in Agnew v. NCAA and NCAA v. Board of Regents.

Hagens Berman subsequently filed two separate transfer lawsuits along similar theories: one on behalf of former Northern Illinois punter Peter Deppe, and the other on behalf of former Northwestern basketball player Johnnie Vassar. Like Pugh, Deppe was dismissed at the district court level (by the same judge who presided in Pugh) after claiming that no schools would offer him a scholarship due to his inability to compete immediately under the year-in-residency requirement. He then appealed to the Seventh Circuit, maintaining that the residency requirement was not an eligibility rule and must scrutinized under the Sherman Act.

Deppe’s bid to curtail the NCAA’s transfer regulations took another hit in late June, when the three-judge Seventh Circuit panel affirmed the district court’s dismissal. Writing for the panel, Judge Diane Sykes staked the court’s decision on the presumption of procompetitiveness attached to NCAA eligibility rules, which she argued stemmed from circuit (Agnew) and Supreme Court (Board of Regents) precedent.

The 11-page opinion first discussed the facts of Deppe’s case, which are as follows:

• Deppe walked on to the NIU football team, and was later promised a scholarship by the school’s coaching staff;
• After a coaching change, the new NIU staff informed Deppe he would not be receiving a scholarship;
• Deppe sought to transfer, and attracted interest from other Division I schools, including the University of Iowa;
• Deppe was accepted at Iowa solely on academic merit, but the school ultimately elected not to pursue a waiver of the year-in-residency requirement and instead focused their recruiting efforts on a punter who could play for the team immediately. Deppe never again played college football.

The court then reviewed the holdings in Board of Regents and Agnew. Board of Regents, the panel reasoned, laid the groundwork for the precompetitive presumption when it observed:

It is reasonable to assume that most of the regulatory controls of the NCAA [including “rules defining the conditions of the contest, the eligibility of participants, or the manner in which members of a joint enterprise shall share the responsibilities and the benefits of the total venture”] are justifiable means of fostering competition among amateur athletic teams and therefore procompetitive because they enhance public interest in intercollegiate athletics.

468 U.S. 85, 117 (1984)

Agnew then took Board of Regents a step further, interpreting the language above as “a license to find certain NCAA bylaws…to be precompetitive…at the motion-to-dismiss stage.” Sykes restated the standard Agnew developed from Board of Regents, which is:

[A]n NCAA bylaw is presumptively procompetitive when it is “clearly meant to help maintain the ‘revered tradition of amateurism in college sports’ or the ‘preservation of the student-athlete in higher education.’”

683 F.3d 328, 342-43 (7th Cir. 2012) (quoting Bd. of Regents, 468 U.S. at 120)

The Deppe court stressed these prior holdings meant nearly every NCAA regulation relating to athlete eligibility would be upheld as precompetitive without serious antitrust scrutiny.

Deppe’s case is then analyzed along the Agnew standard, with the panel finding the year-in-residency requirement within the scope of the precompetitive presumption on the following grounds:

• The rule is found in the “Eligibility” section of the NCAA’s rulebook. The court rejected Deppe’s argument “that the year-in-residence rule does not “fit within the contours of a traditional eligibility bylaw,” reasoning that other courts had found similar regulations (e.g., those governing professional draft entry, amateurism, graduate transfers) to be “eligibility rules”;

• Without the year-in-residency rule, college players “could be ‘traded’ from year to year like professional athletes,” which could “sever[] the athletic and academic aspects of college sports[.]”
• The rule safeguards athletes in high-profile sports (basketball, football, etc.) “who are most vulnerable to poaching.” Here, the panel repeats its claim that without the residency rule, college players “could be traded like professional athletes.”
• The rule prevents a talent drain from lower-level Division I and II schools to Power 5 institutions, “which would risk eroding the amateur character of the college game.”

Overall, the panel concluded, the year-in-residency rule promotes “the maintenance of the amateur character of the college game” and is therefore presumptively precompetitive under Board of Regents and Agnew. The Court rejected Deppe’s arguments that 1) the exceptions to the residency rule belied the NCAA’s claim that such a rule was necessary to preserve amateurism; 2) anti-competitive economic motives underlie the transfer regulations; 3) the year-in-residency rule is an impermissible cost containment strategy; and 4) the residency requirement stymies competition in the NCAA Division I by impeding the free flow of labor (athletes) between institutions to the detriment of lower-level, which might otherwise benefit to a greater degree from player transfers.

Barring en banc review or a Supreme Court appeal, the NCAA has likely dodged Deppe’s challenge. The result here might also spell the end of Vassar’s suit, wherein both parties acknowledged in late 2017 the outcome of Deppe would likely be dispositive of the antitrust claim in Vassar’s complaint.

It is important to note, however, that not all courts have interpreted Board of Regents as Agnew did. The 9th Circuit, in fact, expressly rejected Agnew’s reading in O’Bannon v. NCAA. There, Judge Jay Bybee assailed Agnew as “rest[ing] on the dubious proposition that in Board of Regents, the Supreme Court ‘blessed’ NCAA rules that were not before it, and did so to a sufficient degree to virtually exempt those rules from antitrust scrutiny.” 802 F.3d 1049, 1064 (9th Cir. 2015). The O’Bannon court refused to credit Agnew’s “aggressive construction” of Board of Regent’s language, declaring the NCAA’s “amateurism rules’ validity must be proved, not presumed.” Id. Given O’Bannon’s strong refutation of Agnew, litigating transfer rule challenges in the 9th Circuit—and steering clear of the NCAA-friendly 7th Circuit—may offer player-plaintiffs a better chance at overturning the year-in-residency requirement.

Cameron Miller is a 2016 graduate of Stanford University and earned a Master's in Sports Law & Business from Arizona State University in 2017. He is the Sports Lawyers Association's Research Assistant.