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IN THE UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA

NATIONAL COLLEGIATE ATHLETIC ASSOCIATION, Document Filed Electronically Plaintiff, v. THOMAS W. CORBETT, JR., in his capacity as Governor of the Commonwealth of Pennsylvania, ROB MCCORD, in his capacity as Treasurer of the Commonwealth of Pennsylvania, MARK R. ZIMMER, in his capacity as Chairman of the Pennsylvania Commission on Crime and Delinquency, and EUGENE DEPASQUALE, in his capacity as Auditor General of the Commonwealth of Pennsylvania, Defendants. Civil Action No. COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

COMPLAINT 1. This lawsuit arises from an attempt by the legislature of Pennsylvania to negate a

valid contract (“Consent Decree”) between the National Collegiate Athletic Association (“NCAA” or the “Association”) and The Pennsylvania State University (“Penn State”), 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. The Pennsylvania Institution of Higher Education Consent Decree Endowment Act violates the United States Constitution and cannot be enforced. 2. Plaintiff NCAA, by its undersigned attorneys, for its complaint states as follows:

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NATURE OF THE ACTION 3. This is a civil action for declaratory and injunctive relief arising under various

provisions of the United States Constitution. This case concerns the constitutionality of the Institution of Higher Education Consent Decree Endowment Act, enacted by Pennsylvania on February 20, 2013, and codified as “the Act of February 20, 2013, Act No. 1 of 2013.” (“Act”) (Attached as amended and passed by the General Assembly as Exhibit A). 4. Plaintiff complains that the Act is unconstitutional in that it violates Article I,

Section 10 of the United States Constitution, which provides that “No State shall … make any … Law impairing the Obligation of Contracts.” 5. Plaintiff also complains that the Act is unconstitutional in that it violates the

Takings Clause of the Fifth Amendment to the United States Constitution, which provides “nor shall private property be taken for public use, without just compensation.” 6. Plaintiff also complains that the Act is unconstitutional in that it violates Article I,

Section 8 of the United States Constitution, which provides that “The Congress shall have Power … To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.” 7. Plaintiff seeks declaratory relief pursuant to 28 U.S.C. §§ 2201-02, the

Declaratory Judgment Act, declaring unlawful the Pennsylvania Institution of Higher Education Consent Decree Endowment Act. Plaintiff also seeks injunctive relief pursuant to 42 U.S.C. § 1983, restraining Defendants from enforcing the Act against it. JURISDICTION AND VENUE 8. This Court has jurisdiction over this action under 28 U.S.C. § 1331, which confers

original jurisdiction to federal district courts over actions arising under the Constitution or laws of the United States. 2

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9.

Venue is proper under 28 U.S.C. § 1391(b)(1), because all Defendants are

residents of the Commonwealth of Pennsylvania, and one or more of the Defendants resides and transacts official business in this District. PARTIES 10. Plaintiff NCAA is a voluntary, unincorporated, national association of higher

education institutions, with headquarters in Indianapolis, Indiana. The NCAA seeks to govern intercollegiate athletic competition in a fair, safe, equitable and sportsmanlike manner, to promulgate and enforce uniform rules for the administration of intercollegiate athletics, and to integrate intercollegiate athletics into higher education so that the educational experience of the student-athlete is paramount. 11. Defendant Thomas W. Corbett, Jr. is the Governor of the Commonwealth of

Pennsylvania, and is sued in his official capacity. The Governor is directed to take care to enforce the laws of the Commonwealth. 12. Defendant Rob McCord is the Treasurer of the Commonwealth of Pennsylvania,

and is sued in his official capacity. Under the Act, Mr. McCord is directed to invest and serve as custodian of money secured pursuant to the Act. Act, § 3(b)(1). 13. Defendant Mark R. Zimmer is the Chairman of the Pennsylvania Commission on

Crime and Delinquency, and is sued in his official capacity. Under the Act, the Commission is directed to expend money secured under the Act “within [the] Commonwealth for the benefit of the residents of [the] Commonwealth.” Act, § 3(b)(4). 14. Defendant Eugene DePasquale is the Auditor General of the Commonwealth of

Pennsylvania, and is sued in his official capacity. Mr. DePasquale is empowered by Pennsylvania law to review expenditures made by Penn State. 3

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RELEVANT FACTS Pennsylvania’s Relationship with Penn State University 15. The Supreme Court of Pennsylvania has explained that the relationship between

Penn State and the Commonwealth has evolved over time, “resulting in the fact that the University’s principal means of support are no longer state and federal funds but private and federal funds.” Pa. State Univ. v. Cnty. of Centre, 532 Pa. 142, 149, 615 A.2d 303, 306-07 (1992). 16. Upon information and belief, Penn State’s Operating Budget for 2012-2013 is

approximately $4.3 billion. 17. Upon information and belief, in 2012-2013, state appropriations accounted for a

small portion of Penn State’s incoming revenue. 18. The Supreme Court of Pennsylvania has held 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.” Pa. State Univ., 532 Pa. at 149, 615 A.2d at 307. 19. Upon information and belief, no state appropriations are used to support

Intercollegiate Athletics, including the football team. The football program at Penn State generates revenue and profit sufficient to fund its entire program as well as most, if not all, other Penn State athletic programs. 20. Upon information and belief, 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. Penn State University’s Membership in the NCAA 21. Penn State has been a member of the NCAA since 1908. 4

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22.

By virtue of its active membership in the NCAA, Penn State has the right to

compete in NCAA championships, to vote on legislation and other issues before the Association, and to enjoy other privileges of membership designated in the constitution and bylaws of the Association. NCAA 2012-13 Division I Manual art. 3.02.3.1. 23. All members of the NCAA “accept and observe the principles set forth in the

constitution and bylaws of the Association.” Id. art. 3.1.1. 24. Article 2.1 of the NCAA Constitution provides that “it is the responsibility of

each member institution to control its intercollegiate athletics program in compliance with the rules and regulations of the Association.” Id. art. 2.1.1. 25. NCAA bylaws explain that “[f]or intercollegiate athletics to promote the character

development of participants, to enhance the integrity of higher education and to promote civility in society, student-athletes, coaches, and all others associated with these athletics programs and events should adhere to such fundamental values as respect, fairness, civility, honesty and responsibility. These values should be manifest not only in athletics participation, but also in the broad spectrum of activities affecting the athletics program.” Id. art. 2.4. 26. The NCAA’s bylaws also require “Exemplary Conduct” from coaches and

administrators. Id. art. 19.01.2. Such persons “are, in the final analysis, teachers of young people” and “[t]heir own moral values must be so certain and positive that those younger and more pliable will be influenced by a fine example. Much more is expected of them than of the less critically placed citizen.” Id. 27. The NCAA’s member schools also have charged the NCAA “[t]o uphold the

principle of institutional control of, and responsibility for, all intercollegiate sports.” Id. art. 1.2(b).

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28.

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, inter alia, “[p]rohibition against specified competition in [a] sport,” id. art. 19.5.2(g), or a “[f]inancial penalty,” id. art. 19.5.2(i). Sexual Abuse Involving Penn State Defensive Coordinator Gerald A. Sandusky and The Freeh Report 29. On November 4, 2011, the Attorney General of the Commonwealth of

Pennsylvania (“Attorney General”) filed criminal charges against Gerald A. Sandusky (“Sandusky”) that included multiple counts of involuntary deviate sexual intercourse, aggravated indecent assault, corruption of minors, unlawful contact with minors, and endangering the welfare of minors. 30. Several of the offenses occurred between 1998 and 2002, during which time

Sandusky was either the Defensive Coordinator for the Penn State football team or a Penn State Professor Emeritus with unrestricted access to the University’s football facilities. 31. The sexual abuse committed by Sandusky occurred in several states, including

Pennsylvania and Texas. 32. Also on November 4, 2011, the Attorney General filed criminal charges against

Penn State’s Athletic Director and Senior Vice President for Finance and Business for failing to report allegations of child abuse to law enforcement and committing perjury during their testimony to the grand jury. 33. On November 21, 2011, the Special Investigations Task Force of the Board of

Trustees of Penn State University engaged former FBI director and former U.S. District Court Judge Louis J. Freeh to investigate circumstances surrounding the criminal charges and the response of University administrators to abuse allegations made against Sandusky. 6

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34. July 12, 2012. 35.

The Report of the Special Investigative Counsel (“Freeh Report”) was released on

The Freeh Report found that there had been “total and consistent disregard by the

most senior leaders at Penn State for the safety and welfare of Sandusky’s child victims.” Freeh Report at 14. Among those singled out were the then-President of Penn State University, head football coach, and athletic director. 36. The Freeh Report found that Penn State’s leaders—including its then-President,

head football coach, and athletic director—had “repeatedly concealed critical facts relating to Sandusky’s child abuse from the authorities” in order to, inter alia, “avoid[] the consequences of bad publicity,” and because of “[a] culture of reverence for the football program that is ingrained at all levels of the campus community.” Id. at 16, 17. The Consent Decree 37. Shortly after the Attorney General of Pennsylvania filed criminal charges against

various Penn State officials, the NCAA began to evaluate potential violations of NCAA rules at Penn State. 38. In part to avoid a prolonged NCAA investigation and NCAA hearings, Penn State

entered into a Consent Decree with the NCAA on July 23, 2012. The Consent Decree (Attached as Exhibit C) constitutes a binding contract between the NCAA and Penn State. 39. For purposes of the Consent Decree and resolving its violations of NCAA rules

and regulations, Penn State accepted the findings of the Freeh Report and agreed that the NCAA’s “traditional investigative and administrative proceedings would be duplicative and unnecessary.” Consent Decree at 1. 40. Instead, Penn State and the NCAA agreed that the Freeh Report, as well as the

record established by Sandusky’s criminal trial, permitted “fashioning an appropriate remedy for 7

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the violations on an expedited timetable, which benefits current and future University students, faculty and staff.” Id. at 1. 41. In particular, Penn State “communicated to the NCAA that it accepts the findings

of the Freeh Report for purposes of [the Consent Decree] and acknowledges that those facts constitute violations of the [NCAA’s] Constitutional and Bylaw principles.” Id. at 2. Penn State likewise formally accepted the NCAA’s conclusion that Penn State “breached the standards expected by and articulated in the NCAA Constitution and Bylaws.” Id. at 2. 42. 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.” Id. at 5. 43. On the day on which the Consent Decree was finalized, the President of Penn

State explained that pursuant to the Consent Decree, “[t]he NCAA also mandates that Penn State become a national leader to help victims of child sexual assault and to promote awareness across our nation.” Press Release, Penn State, President Erickson’s Statement Regarding NCAA Consent Decree (July 23, 2012). 44. Penn State has continued to acknowledge that “[a]s part of the consent decree

issued by the NCAA in the wake of child abuse charges against Jerry Sandusky, the NCAA mandated that Penn State become a national leader to help victims of child sexual assault across the nation.” Press Release, Penn State, NCAA Task Force Sets Timeline for Endowment Fund (Dec. 7, 2012).

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45.

On or about September 18, 2012, prior to introduction of the Act, the NCAA

appointed a task force to oversee the creation of the endowment funded by the fine required to be paid pursuant to the Consent Decree. The task force members include the Dean of the College of Health and Human development at Penn State and the Vice Dean for Clinical Affairs at the Penn State College of Medicine. Other members were drawn from national nonprofit organizations (some specializing in child advocacy), the federal government, and the NCAA membership. 46. Penn State has explained that “[t]he task force will decide how the endowment is

structured, develop philosophies for allocation of funds and create policies for investment and distribution of benefits.” Press Release, Penn State, Penn State Sets Aside First Payment of NCAA Fine (Dec. 20, 2012). 47. The Task Force established that “[a]ll funds from the fine will follow the

endowment guidelines established by the Child Sexual Abuse Endowment Task Force and flow to programs designed to prevent child sexual abuse or assist the victims of child sexual abuse nationwide.” Press Release, NCAA.org, Task Force Members Named to Oversee Penn State Endowment Fund (Sept. 18, 2012). 48. 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. 49. Upon information and belief, Penn State has the financial ability to pay the full

$60 million fee without using state-appropriated funds. 50. Penn State has made clear that no state funds will be used for the endowment.

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The Institution of Higher Education Consent Decree Endowment Act 51. On December 28, 2012, State Senator Jake Corman (“Senator Corman”)

circulated a memorandum to other state senators entitled “NCAA Fine Endowment for Pennsylvania.” (Attached as Exhibit B). 52. 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. In his memorandum, Senator Corman explained: “[i]n the near future, I plan to introduce legislation to direct funds from penalties placed on Commonwealth supported institutions of higher education to Commonwealth causes. The legislation requires that any institution of higher education that receives state appropriated funds and has received a penalty of $10 million or more from an outside governing body, must establish an endowment that will distribute the funds into the Commonwealth.” The memorandum explained, in closing, that “[t]his legislation seeks to impact the $60 million financial penalties placed upon the Penn State University.” 53. On January 16, 2013, various state senators introduced the “Institution of Higher

Education Consent Decree Endowment Act.” The Act applies to any “institution of higher education,” which is defined as “[a] postsecondary educational institution in this Commonwealth that receives an annual appropriation from an act of the General Assembly.” The Act applies to certain transactions between an institution of higher education and a “governing body,” defined as “[a]n organization or legal entity with which an institution of higher education is associated and which body may impose a monetary penalty against the institution of higher education.” 54. As amended and enacted, the Act provides that “[i]f an institution of higher

education pays a monetary penalty pursuant to an agreement entered into with a governing body

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and: (1) the monetary penalty is at least $10,000,000 in installments over a time period in excess of one year; and (2) the agreement provides that the monetary penalty will be used for a specific purpose, then the monetary penalty shall be deposited into an endowment that complies with the provisions of subsection (b).” 55. As enacted, subsection (b) provides that “[t]he endowment shall be established as

a separate trust fund in the State Treasury and the State Treasurer shall be custodian thereof.” The Act thus 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. 56. The Act directs the Pennsylvania Commission on Crime and Delinquency to

“expend the money of the endowment.” Act, § 3(b)(3). The Act 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. 57. The Act specifies that “[u]nless otherwise expressly stated in the agreement, the

funds may only be used within this Commonwealth for the benefit of the residents of this Commonwealth,” and only for certain specified purposes related to sexual abuse. Act, § 3(b)(4). The Act thus provides that monies that a governing body intended for use nationwide may only be spent within the Commonwealth to benefit the residents thereof. 58. The Act “shall apply to all monetary penalties paid or payable under agreements

between institutions of higher education and governing bodies regardless of the payment date,” Act, § 5, and “shall take effect immediately,” Act, § 6. 59. On or about January 30, 2013, Senator Corman issued a press release announcing

that “[t]he state Senate today unanimously approved legislation … which would ensure that all

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proceeds from Penn State’s $60 million fine are used to fund programs within Pennsylvania. The fine—which will go into an endowment for programs to prevent child sex abuse or help abuse victims—is one of a number of sanctions imposed on Penn State by the National Collegiate Athletic Association.” Press Release, State Senator Jake Corman, Senate Passes Corman Bill to Keep Penn State Fine Money in PA (Jan. 30, 2013). 60. The Act is intended to apply, and the Act’s sponsors have indicated it will apply,

to the full $60 million fine that Penn State committed to pay prior to enactment of the Act. 61. The Act is not limited to monetary penalties paid with state funds, but rather it

applies to all monetary penalties paid by an institution of higher education—whether the funds come from private donations, tuition, revenues generated by athletics, or other sources—as long as that institution receives any state-appropriated funds. COUNT I (VIOLATION OF THE TAKINGS CLAUSE OF AMENDMENT 5 TO THE UNITED STATES CONSTITUTION) 62. herein. 63. Senator Corman’s memorandum of December 28, 2012 and his press release of The foregoing Paragraphs are incorporated by reference as if set forth in full

January 30, 2013 concerning the legislation set out that the purpose of the legislation is to seize and control the $60 million fine that Penn State agreed to pay to the endowment to be created by the NCAA. 64. The Consent Decree established a contractual obligation that Penn State pay the

NCAA’s $60 million fine over a five-year period into an endowment to be created by the NCAA.

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65.

Both parties to the contract publicly acknowledged prior to the introduction or

enactment of the Act that their contractual intent and expectation was for the NCAA to create an endowment to manage the $60 million fine. 66. An express purpose of the Act is to “direct funds from penalties placed on

Commonwealth supported institutions of higher education to Commonwealth causes.” 67. Pursuant to the Act, the Commonwealth of Pennsylvania is directed to take

possession of the funds when Penn State “pays [its] monetary penalty” to the NCAA’s endowment. 68. Pennsylvania. 69. The Act, by its terms, purports to permanently appropriate to the Pennsylvania Funds paid to the NCAA’s endowment are not owned by the Commonwealth of

Treasury the full $60 million fine, even though the contract requires that the penalty be paid into the NCAA’s endowment. 70. By directing Pennsylvania officials to collect and take payments to which it is not

entitled, the Act amounts to a taking of private property without just compensation. COUNT II (VIOLATION OF THE CONTRACT CLAUSE, ART. I, SEC. 10 OF THE UNITED STATES CONSTITUTION) 71. herein. 72. Pursuant to the Consent Decree, Penn State accepted the NCAA’s conclusion that The foregoing Paragraphs are incorporated by reference as if set forth in full

it breached the standards expected by and set forth in the NCAA Constitution and Bylaws by, inter alia, failing to protect children from a predator because senior leaders of Penn State concealed these activities for over a decade.

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73.

Pursuant to the Consent Decree, Penn State contractually committed to pay a fine

of $60 million into an “endowment for programs preventing child sexual abuse and/or assisting the victims of child sexual abuse.” 74. The drafters of the Act made clear that “[t]his legislation seeks to impact the

$60 million financial penalties placed upon the Penn State University.” 75. The avowed purpose of the Act is to disrupt Penn State’s contractual promise to

pay the $60 million into the endowment created by the NCAA. 76. The NCAA and Penn State agreed that Penn State’s fine would be paid into an

endowment that would invest in the most appropriate programs available to prevent and/or assist the victims of sexual abuse, without any geographic restriction. By seizing the funds and restricting eligibility to benefit from the funds only to Pennsylvania programs benefiting only Pennsylvania residents, the Act will defeat the Consent Decree’s plain terms and frustrate the parties’ intended purpose. 77. Upon information and belief, the only penalty affected by the Act is Penn State’s

contractual promise to pay $60 million into the endowment created by the NCAA. 78. The Act operates as a substantial impairment of Penn State’s contractual promise

to pay $60 million into the endowment created by the NCAA. 79. Pennsylvania has advanced no permissible justification for abridging Penn State’s

contractual agreement with the NCAA. COUNT III (VIOLATION OF THE COMMERCE CLAUSE, ART. I, SEC. 8 OF THE UNITED STATES CONSTITUTION) 80. herein. The foregoing Paragraphs are incorporated by reference as if set forth in full

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81.

Under the Consent Decree, Penn State committed to pay the $60 million fine

levied by the NCAA to an endowment established by the NCAA. 82. The NCAA-established endowment’s stated purpose is “to prevent child sexual

abuse or assist the victims of child sexual abuse nationwide.” 83. The Act expressly provides, however, that the “funds may only be used within

this Commonwealth … for the benefit of the residents of this Commonwealth.” 84. The Act, by its terms, provides that money owned by a private endowment and

intended for use nationwide may only be used within the borders of one State. 85. The Act, by its terms, provides that money intended to benefit individuals

nationwide may only be used to benefit the residents of one State. 86. 87. The Act, by its terms, discriminates against interstate commerce. The Act purports to regulate out-of-state transactions by out-of-state entities, such

as the NCAA, the NCAA’s Task Force, and the NCAA-established endowment. The Act therefore amounts to an impermissible extraterritorial regulation of commerce. PRAYER FOR RELIEF WHEREFORE, Plaintiff requests that this Court grant the following relief: (1) (2) (3) (4) A declaration that the Act is unconstitutional; An injunction against enforcement of the Act; Attorneys’ fees costs; and Such other and further relief as this Court deems just and proper.

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Dated: February 20, 2013 OF COUNSEL, PHV to be requested: Everett C. Johnson, Jr. (DC No. 358446) J. Scott Ballenger (DC No. 465252) LATHAM & WATKINS LLP 555 Eleventh Street NW Suite 1000 Washington, D.C. 20004-1304 Telephone: (202) 637-2200 Email: everett.johnson@lw.com

Respectfully submitted, /s/ Thomas W. Scott Thomas W. Scott (PA No. 15681) KILLIAN & GEPHART, LLP 218 Pine Street P.O. Box 886 Harrisburg, PA 17108-0886 Telephone: (717) 232-1851 Email: tscott@killiangephart.com

Attorneys for Plaintiff National Collegiate Athletic Association

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EXHIBIT A

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238

THE GENERAL ASSEMBLY OF PENNSYLVANIA

SENATE BILL No. 187

Session of 2013

INTRODUCED BY CORMAN, SCARNATI, PILEGGI, YUDICHAK, FONTANA, TEPLITZ, WASHINGTON, MENSCH, YAW, GREENLEAF, ARGALL, ROBBINS, VULAKOVICH, HUGHES, GORDNER, ALLOWAY, RAFFERTY, HUTCHINSON, ERICKSON, BAKER, TOMLINSON, SCHWANK, WAUGH, D. WHITE AND COSTA, JANUARY 16, 2013 SENATOR CORMAN, APPROPRIATIONS, REPORTED AS AMENDED, JANUARY 28, 2013 AN ACT
1 2 3 4 5 6

Requiring certain institutions of higher education that enter into consent decrees AGREEMENTS WITH GOVERNING BODIES which impose fines MONETARY PENALTIES to pay the fines MONETARY PENALTIES into endowments under certain circumstances; and providing for duties of the Pennsylvania Commission on Crime and Delinquency. The General Assembly of the Commonwealth of Pennsylvania hereby enacts as follows: Section 1. Short title.

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7 8 9 10 11 12 13 14 15 16 17 18

This act shall be known and may be cited as the Institution of Higher Education Consent Decree MONETARY PENALTY Endowment Act. Section 2. Definitions.
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The following words and phrases when used in this act shall have the meanings given to them in this section unless the context clearly indicates otherwise: "Commission." Delinquency. The Pennsylvania Commission on Crime and

Case 1:13-cv-00457-YK Document 1-2 Filed 02/20/13 Page 33of 66 Case 3:02-at-06000 Document 211-2 Filed 02/20/13 Page of 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 "Governing body." The body of an AN organization or legal
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entity with which an institution of higher education is associated and which body may impose a fine or MONETARY penalty against the institution of higher education. "Institution of higher education." A postsecondary
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educational institution in this Commonwealth that receives a direct AN ANNUAL appropriation from an act of the General Assembly. Section 3. (a) Consent decree fine MONETARY PENALTY endowments.

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General rule.--If an institution of higher education
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enters into a consent decree with a governing body and the consent decree: (1) requires the institution of higher education to pay

a fine of PAYS A MONETARY PENALTY PURSUANT TO AN AGREEMENT ENTERED INTO WITH A GOVERNING BODY AND: (1) THE MONETARY PENALTY IS at least $10,000,000 in

<--

installments over a time period in excess of one year; and (2) THE AGREEMENT provides that the fine MONETARY
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PENALTY will be used for a specific purpose, then the institution of higher education shall pay the fine to MONETARY PENALTY SHALL BE DEPOSITED INTO an endowment that complies with the provisions of subsection (b). (b) Requirements of endowment.--An endowment under
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subsection (a) shall satisfy the following requirements: (1) The endowment shall be ESTABLISHED AS a separate
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trust fund in the State Treasury and the State Treasurer shall be custodian thereof. The State Treasurer shall invest the money in the endowment subject to the prudent investor provisions of 20 Pa.C.S. § 7203 (relating to prudent investor rule). The moneys of the separate trust fund are appropriated
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20130SB0187PN0238

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INTO THE ENDOWMENT, THE endowment shall be authorized to accept donations from any source. (3) The commission shall expend the money of the

endowment in accordance with the purposes enumerated in the consent decree AGREEMENT BETWEEN THE INSTITUTION OF HIGHER EDUCATION AND THE GOVERNING BODY and subject to the provisions of paragraph (4). (4) Unless otherwise expressly stated in the consent
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decree AGREEMENT, the funds may only be used within this Commonwealth for the exclusive benefit of the residents of this Commonwealth and on any of the following: (i) Programs or projects preventing child sexual

abuse and or assisting the victims of child sexual abuse. (ii) Multidisciplinary investigative teams

established under 23 Pa.C.S. (relating to Domestic Relations). (iii) (iv) Child advocacy centers. Victim service organizations that provide

services to children subjected to sexual abuse. (v) Training of persons who are mandated by law to

report child sexual abuse or to treat victims of child sexual abuse. (5) If the endowment is established to exist for at

least five years: (i) During the first five years, not more than 50%
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of the fines MONETARY PENALTIES paid into the endowment shall be expended annually as provided in paragraphs (3)
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20130SB0187PN0238

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of the endowment shall be expended as provided in paragraphs (3) and (4). Section 4. (A) Duties of commission.

GENERAL RULE.--Within 12 months of the effective date of <--

a consent decree AN AGREEMENT subject to an endowment under this <-act, the commission shall: (1) Develop a form for applicants to use for requesting
<-<--

money from the endowment established by the consent decree AGREEMENT. (2) Establish a timeline for reviewing applications and

approving expenditures from the endowment. (3) Develop methodology to equitably approve payments to

applicants throughout all geographic areas of this Commonwealth. (B) REPORTING.--FOR AN ENDOWMENT ESTABLISHED UNDER THIS ACT, <--

THE COMMISSION SHALL: (1) PROVIDE NOTICE OF ANY PROPOSED EXPENDITURE OF MONEY

FROM THE ENDOWMENT TO THE PRESIDENT PRO TEMPORE OF THE SENATE, THE MAJORITY AND MINORITY LEADERS OF THE SENATE AND THE CHAIRMAN AND MINORITY CHAIRMAN OF THE APPROPRIATIONS COMMITTEE OF THE SENATE, THE SPEAKER OF THE HOUSE OF REPRESENTATIVES, THE MAJORITY AND MINORITY LEADERS OF THE HOUSE OF REPRESENTATIVES AND CHAIRMAN AND MINORITY CHAIRMAN OF THE APPROPRIATIONS COMMITTEE OF THE HOUSE OF REPRESENTATIVES FOR REVIEW AND COMMENT. NO PROPOSED EXPENDITURE OF MONEY FROM THE ENDOWMENT MAY OCCUR UNTIL 30 DAYS AFTER THE DATE OF THE NOTICE FOR THE PROPOSED EXPENDITURE.
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20130SB0187PN0238

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EXPENDITURES OF MONEY FROM THE ENDOWMENT TO THE PRESIDENT PRO TEMPORE OF THE SENATE, THE MAJORITY AND MINORITY LEADERS OF THE SENATE AND THE CHAIRMAN AND MINORITY CHAIRMAN OF THE APPROPRIATIONS COMMITTEE OF THE SENATE, THE SPEAKER OF THE HOUSE OF REPRESENTATIVES, THE MAJORITY AND MINORITY LEADERS OF THE HOUSE OF REPRESENTATIVES AND CHAIRMAN AND MINORITY CHAIRMAN OF THE APPROPRIATIONS COMMITTEE OF THE HOUSE OF REPRESENTATIVES. THE REPORT SHALL INCLUDE THE NAME OF EACH ORGANIZATION RECEIVING AN EXPENDITURE FROM THE ENDOWMENT, THE AMOUNT RECEIVED BY EACH ORGANIZATION AND SUMMARY INFORMATION AGGREGATING EXPENDITURES BY EXPENDITURE CATEGORY PURSUANT TO SECTION 3(B)(4). Section 5. Applicability.
<-<--

This act shall apply to all fines MONETARY PENALTIES paid or due PAYABLE under consent decrees AGREEMENTS BETWEEN INSTITUTIONS OF HIGHER EDUCATION AND GOVERNING BODIES regardless of the payment date. Section 6. Effective date.

This act shall take effect immediately.

20130SB0187PN0238

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EXHIBIT B

The Pennsylvania Senate - Senate Co-sponsorship Memoranda

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2013-2014 Regular Session 2013-2014 Regular Session 2011-2012 Regular Session

MEMORANDUM
Posted: From: To: Subject: December 28, 2012 01:04 PM Senator Jake Corman All Senate members NCAA Fine Endowment for Pennsylvania

In the near future, I plan to introduce legislation to direct funds from penalties placed on Commonwealth supported institutions of higher education to Commonwealth causes. The legislation requires that any institution of higher education that receives state appropriated funds and has received a penalty of $10 million or more from an outside governing body, must establish an endowment that will distribute the funds into the Commonwealth. In a situation as this, the institution has a public mission acknowledged through state contributions and collecting of such funds will impact other areas of that mission. Additionally, the money will be raised in large part due to activity in the Commonwealth and from Commonwealth residents. Due to both of these factors, state policy should require the money be distributed for the benefit of the state and its residents. The distribution will remain with the intent of the penalty agreement. This legislation seeks to impact the $60 million financial penalties placed upon the Penn State University. If you have any questions, please contact Scott Sikorski in my office at 717-787-1377 or ssikorski@pasen.gov.

(Introduced as SB187)

Contact | Legal Notices

http://www.legis.state.pa.us/cfdocs/Legis/CSM/showMemoPublic.cfm?chamber=S&SPick=20130&cosponId=10386[2/14/2013 2:28:46 PM]

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EXHIBIT C

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BINDING CONSENT DECREE IMPOSED BY THE NATIONAL COLLEGIATE ATHLETIC ASSOCIATION AND ACCEPTED BY THE PENNSYLVANIA STATE UNIVERSITY I. BASIS FOR CONSENT DECREE

On November 5, 2011, the National Collegiate Athletic Association ("NCAA" or the "Association") learned of allegations of child sexual abuse occurring in the athletic facilities of The Pennsylvania State University ("University" or "Penn State"), perpetrated by former assistant football coach Gerald A. Sandusky ("Sandusky"). The University commissioned Freen Sporkin & Sullivan, LLP ("FSS"), led by former FBI Director Louis Freen, to investigate the alleged failure of University personnel to respond to and report Sandusky's misconduct, and "[t]he circumstances under which such abuse could occur in University facilities or under the auspices of University programs for youth." 1 On June 22, 2012, a Criminal Jury convicted Sandusky on 45 criminal counts related to I 0 victims, including a 2001 incident that occutTed in the University athletic showers and was witnessed by a then-graduate assistant. On July 12, 2012, FSS released its investigative report (the "Freeh Report"). The Freeh Report's findings depict an environment shaped by the actions and inactions of members of the leadership and board of Penn State that allowed Sandusky's serial child sexual abuse. The NCAA recognizes that the circumstances involved in the Penn State matter are, in many respects, unlike any matter encountered by the NCAA in the past; it is doubtful, hopefully, that a similar circumstance would arise on any other campus in the future. In particular, the egregiousness of the predicate conduct is unprecedented, amounting to a failure of institutional and individual integrity far exceeding a lack of institutional control or individual unethical conduct. The University has undertaken a commendable process by commissioning the independent FSS investigation. FSS has established an exhaustive factual record compiled from, inter alia, more than 430 interviews and analysis of more than 3.5 million pieces of electronic data and documents. 2 In light of this record and the University's willingness, for purposes of this resolution, to accept the Freeh Report, which the University itself commissioned, traditional investigative and administrative proceedings would be duplicative and unnecessary. Rather, the existing record permits fashioning an appropriate remedy for the violations on an expedited timetable, which benefits current and future University students, faculty and staff.

Freeh Sporkin & Sullivan, LLP, Report of the Special Investigative Counsel Regarding the Actions of The Pennsylvania State University Related to the Child Sexual Abuse Committed by Gerald A. Sandusky, July 12, 2012, page 8, available at http://www.thefreehreportonpsu.com/REPORT_FINAL_071212.pdf.
2

ld. at 9.

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II.

FINDINGS AND CONCLUSIONS

In a November 17, 2011 letter from NCAA President Mark Emmert to University President Rodney Erickson, Dr. Emmert noted that the membership of the Association has made clear in its Constitution and Bylaws what is expected of member institutions, administrators and coaches. Penn State was asked to describe how the University and relevant personnel have met their obligations to the Association. Penn State has communicated to the NCAA that it accepts the findings of the Freeh Report for purposes of this resolution and acknowledges that those facts constitute violations of the Constitutional and Bylaw principles described in the letter. Penn State expressly agrees not to challenge the consent decree and waives any claim to further process, including, without limitation, any right to a determination of violations by the NCAA Committee on Infractions, any appeal under NCAA rules, and any judicial process related to the subject matter of this Consent Decree. Therefore, without further investigation or response, the findings of the Criminal Jury and the Freeh Report establish a factual basis from which the NCAA concludes that Penn State breached the standards expected by and articulated in the NCAA Constitution and Bylaws.
1.

A failure to value and uphold institutional integrity demonstrated by inadequate, and in some instances non-existent, controls and oversight surrounding the athletics program of the University, such as those controls prescribed by Articles 2.1, 6.01.1, and 6.4 of the NCAA Constitution. A failure to maintain minimal standards of appropriate and responsible conduct. The NCAA seeks to foster an environment and culture of honesty, as exemplified by NCAA Bylaws 10.01.1 and 11.1.1, and by Bylaw 10.1 on ethical conduct. Indeed, NCAA Bylaw I 0.1 enumerates a non-exhaustive list of examples of inappropriate conduct. In addition, Article 2.4 of the NCAA Constitution requires athletic programs to adhere to fundamental values of respect, faimess, civility, honesty and responsibility. A lack of adherence to fundamental notions of individual integrity. An institution's head coach should promote an atmosphere for compliance and monitor the activities of all assistant coaches and other administrators involved with the program who report directly or indirectly to the coach. Further, NCAA Bylaw 19.01.2, consistent with Article 2.4 of the NCAA Constitution, demands the employees associated with intercollegiate athletics to serve as positive moral models for students in order "for intercollegiate athletics to promote the character development of participants, to enhance the integrity of higher education and to promote civility in society."

2.

3.

2

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The entirety of the factual findings in the Freeh Report supports these conclusions. A detailed recitation of the Freeh Repmi is not necessary, but these conclusions rely on the following key factual findings with respect to the University's oversight of its football program: • [University] President Graham B. Spanier, Senior Vice President-Finance and Business Gary C. Shultz, Athletic Director Timothy M. Curley and Head Football Coach Joseph V. Paterno [] failed to protect against a child sexual predator hanning children for over a decade. These men concealed Sandusky's activities from the Board of Trustees, the University community and authorities .... These individuals, unchecked by the Board of Trustees that did not perform its oversight duties, empowered Sandusky to attract potential victims to the campus and football events by allowing him to have continued, unrestricted and unsupervised access to the University's facilities and affiliation with the University's prominent football program. Indeed, that continued access provided Sandusky with the very currency that enabled him to attract his victims. Some coaches, administrators and football program staff members ignored the red flags of Sandusky's behaviors and no one warned the public about him. By not promptly and fully advising the Board of Trustees about the 1998 and 200 I child sexual abuse allegations against Sandusky and the subsequent Grand Jury investigation of him, Spanier failed in his duties as President. The Board also failed in its duties to oversee the President and senior University officials in 1998 and 2001 by not inquiring about important University matters and by not creating an environment where senior University officials felt accountable. 3

o

FSS recognized that Spanier, Schultz, Paterno and Curley provided various explanations for their deficient conduct, but FSS found that it was
o

more reasonable to conclude that, in order to avoid the consequences of bad publicity, the most powerful leaders at the University - Spanier, Schultz, Paterno and Curley - repeatedly concealed critical facts relating to Sandusky's child abuse from the authorities, the University's Board of Trustees, the Penn State community and the public at large. 4

Although FSS concluded that avoiding the consequences of bad publicity was the most significant cause for the University's failure to protect child victims and report to authorities, FSS further concluded it was not the only cause. FSS also noted, among other causes, that

3
4

!d. at 14-15. !d. at 15-16. 3

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• •

the President "discouraged discussion and dissent"; Spanier, Schultz, Paterno, and Curley allowed Sandusky to retire as a valued member of the University's football legacy, with "ways 'to continue to work with young people through Penn State,' essentially granting him license to bring boys to campus facilities for 'grooming' as targets for his assaults"; the football program "did not fully participate in, or opted out, of some University programs, including Clery Act compliance ... "; and the University maintained a "culture of reverence for the football program that is ingrained at all levels of the campus community." 5

III.

SANCTIONS

The NCAA concludes that this evidence presents an unprecedented failure of institutional integrity leading to a culture in which a football program was held in higher esteem than the values of the institution, the values of the NCAA, the values of higher education, and most disturbingly the values of human decency. The sexual abuse of children on a university campus by a former university official - and even the active concealment of that abuse - while despicable, ordinarily would not be actionable by the NCAA. Yet, in this instance, it was the fear of or deference to the omnipotent football program that enabled a sexual predator to attract and abuse his victims. Indeed, the reverence for Penn State football permeated every level of the University community. That imbalance of power and its result are antithetical to the model of intercollegiate athletics embedded in higher education. Indeed, the culture exhibited at Penn State is an extraordinary affront to the values all members of the Association have pledged to uphold and calls for extraordinary action. As a result, the NCAA has determined that the University's sanctions be designed to not only penalize the University for contravention of the NCAA Constitution and Bylaws, but also to change the culture that allowed this activity to occur and realign it in a sustainable fashion with the expected norms and values of intercollegiate athletics. Moreover, the NCAA recognizes that in this instance no student-athlete is responsible for these events and, therefore, the NCAA has fashioned its sanctions in consideration of the potential impact on all student-athletes. To wit, after serious consideration and significant discussion, the NCAA has determined not to impose the so-called "death penalty." While these circumstances certainly are severe, the suspension of competition is most warranted when the institution is a repeat violator and has failed to cooperate or take corrective action. The University has never before had NCAA major violations, accepted these penalties and corrective actions, has removed all of the individual offenders identified by FSS from their past senior leadership roles, has itself commissioned the FSS investigation and provided unprecedented access and openness, in some instances, even agreed to waive attorneyclient privilege, and already has implemented many corrective actions. Acknowledging these and other factors, the NCAA does not deem the so-called "death penalty" to be appropriate.

5

Jd. at 16-17.
4

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In light of the foregoing, the NCAA imposes the following sanctions on the University:

A.

Punitive Component
$60 million fine. The NCAA imposes 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 minimum annual payment will be $12 million until the $60 million is paid. The proceeds of this fine may not be used to fund programs at the University. No current sponsored athletic team may be reduced or eliminated in order to fund this fine. Four-year postseason ban. The NCAA imposes a four-year ban on participation in postseason play in the spmt of football, beginning with the 2012-2013 academic year and expiring at the conclusion of the 2015-2016 academic year. Therefore, the University's football team shall end its 2012 season and each season through 2015 with the playing of its last regularly scheduled, in-season contest and shall not be eligible to participate in any postseason competition, including a conference championship, any bowl game, or any post-season playoff competition. Four-year reduction of grants-in-aid. For a period of four years commencing with the 2013-2014 academic year and expiring at the conclusion of the 20162017 academic year, the NCAA imposes a limit of 15 initial grants-in-aid (from a maximum of twenty-five allowed) and for a period of four years commencing with the 2014-2015 academic year and expiring at the conclusion of the 20172018 academic year a limit of 65 total grants-in-aid (from a maximum of 85 allowed) for football during each of those specified years. In the event the number of total grants-in-aid drops below 65, the University may award grants-inaid to non-scholarship student-athletes who have been members of the football program as allowed under Bylaw 15.5.6.3.6. Five years of probation. The NCAA imposes this period of probation, which will include the appointment of an on-campus, independent Integrity Monitor and periodic reporting as detailed in the Conective Component of this Consent Decree. Failure to comply with the Consent Decree during this probationary period may result in additional, more severe sanctions. Vacation of wins since 1998. The NCAA vacates all wins of the Penn State football team from 1998 to 2011. The career record of Coach "Joe" Paterno will reflect the vacated records.

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Waiver of transfer rnles and grant-in-aid retention. Any entering or returning football student-athlete will be allowed to immediately transfer and will be eligible to immediately compete at the transfer institution, provided he is otherwise eligible. Any football student-athlete who wants to remain at the University may retain his athletic grant-in-aid, as long as he meets and maintains applicable academic requirements, regardless of whether he competes on the football team. Individual penalties to be determined. The NCAA reserves the right to initiate a formal investigatory and disciplinary process and impose sanctions on individuals after the conclusion of any criminal proceedings related to any individual involved.

B.

Corrective Component
Adoption of all recommendations presented in Chapter 10 of the Freeh Report. The NCAA requires the University to adopt all recommendations for reform delineated in Chapter I 0 of the Freeh Report. The University shall take all reasonable steps to implement the recommendations in spirit and substance by December 31,2013. Implementation of Athletics Integrity Agreement. The Freeh Report includes a number of recommendations related to the University's Athletic Department. Specifically, in Chapter 10, Section 5.0, the Report addresses the integration of the Athletic Department into the greater University community. Within I 0 days of this Consent Decree, the University will be required to enter into an "Athletics Integrity Agreement" ("AlA") with the NCAA and the Big Ten Conference, which obligates the University to adopt all of the recommendations in Section 5.0 of the Freeh Report as described in the above paragraph and, at a minimum, the following additional actions: o Compliance Officer for Athletics. Establish and select an individual for a position of a compliance officer or equivalent who is, at a minimum, responsible for the ethical and compliance obligations of the Athletic Department. Compliance Council. Create a Compliance Council (or Council Subcommittee) composed of faculty, senior University administrators, and the compliance officer for athletics, which shall be responsible for review and oversight of matters related to ethical, legal and compliance obligations of the Athletic Department.

o

6

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o

Disclosure Program. Create a reporting mechanism, including a hotline, for named or anonymous individuals to disclose, report, or request advice on any identified issues or questions regarding compliance with (i) the AlA; (ii) the Athletic Department's policies, conduct, practices, or procedures, or (iii) the NCAA Constitution, Bylaws, or the principals regarding institutional control, responsibility, ethical conduct, and integrity reflected in the Constitution and Bylaws. Internal Accountability and Certifications. Appoint a named coach, manager, or administrator for each of the University's NCAA-sanctioned intercollegiate athletic teams who shall be assigned to monitor and oversee activities within his or her team and shall annually cettify to the Compliance Council that his or her team is compliant with all relevant ethical, legal, compliance and University standards and obligations. External Compliance Review/Certification Process. The Athletic Director shall annually cettify to the Compliance Council, the Board of Trustees, and the NCAA that the Athletic Department is in compliance with all ethical, compliance, legal and University obligations. If the Department fails to earn a certification, the Board of Trustees (or subcommittee thereof) or an appropriate University administrator shall take appropriate action against the Athletic Department, including the possibility of reduction in athletic funding. Athletics Code of Conduct. Create or update any code of conduct of the Athletic Department to codify the values of honesty, integrity and civility. Training and Education. In addition to Chapter 10, Section 5.5 of the Freeh Report, require all student-athletes and University employees associated with the Athletic Department, including faculty and staff to complete a yearly training course that addresses issues of ethics, integrity, civility, standards of conduct and reporting of violations. Each person who is required to complete training shall certify, in writing, that he or she has received such training. All training shall be overseen by the Compliance Council. The Board of Trustees also should receive training and education on these issues, including its relationship, role and responsibilities regarding the athletics program.

o

o

o

o

If the NCAA detennines, in its sole discretion, that the University materially breached any provision of the AlA, such action shall be considered grounds for extending the term of the AlA or imposing additional sanctions, up to and including, a temporary ban on participation in certain intercollegiate athletic competition and additional fines. The NCAA shall be permitted to accept as true and take into consideration all factual findings of the Freeh Rep01t in imposing additional sanctions related to breach of the AlA and may initiate fmther NCAA investigative and administrative proceedings. The NCAA will provide the University notice of the allegation of a material breach and an opportunity to
7

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respond, but the final detennination rests with the NCAA.
• Appointment of an independent Athletics Integrity Monitor for a five-year period. The NCAA requires that the University appoint an independent Athletics Integrity Monitor (the "Monitor") for a five-year period, at the University's expense. The Monitor will prepare a quarterly report to the University's Board of Trustees, the Big Ten Conference, and the NCAA regarding the University's execution and maintenance of the provisions of the AlA. The Monitor will make recommendations to the University to take any steps he or she reasonably believes are necessary to comply with the terms of the AlA and to enhance compliance with NCAA rules and regulations. The Monitor will operate under the following conditions:

o o

He or she will be selected by the NCAA, in consultation with the University and the Big Ten Conference. He or she will have access to any University facilities, personnel and nonprivileged documents and records as are reasonably necessary to assist in the execution of his or her duties. The University shall preserve all such records as directed by the Monitor. He or she will have the authority to employ legal counsel, consultants, investigators, experts and other personnel reasonably necessary to assist in the proper discharge of his or her duties. His or her expenses will be paid by the University, and the University shall indemnify and hold harmless the Monitor and his or her professional advisors from any claim by any third party except for conduct: a) outside the scope of the Monitor's duties; b) undertaken in bad faith; or c) constituting gross negligence or willful misconduct.

o

This Consent Decree may be modified or clarified by mutual written consent of the parties.

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By signature of its President below, the University represents (i) that it has taken all actions necessary, to execute and perform this Consent Decree and the AlA and will take all actions necessary to perform all actions specified under this Consent Decree and the AlA in accordance with the terms hereof and thereof; (ii) its entry into this Consent Decree and the AlA is consistent with, and allowed by, the laws of Pennsylvania and any other applicable law. IN WITNESS WHEREOF, this Consent Decree has been signed by or on behalf of each of the patties as of July 23, 2012.

Rodney A. Erickson, President The Pennsylvania State University

Mark A. Emmett, President National Collegiate Athletic Association

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