O'Brien was relieved of his duties by then-OSU athletic director Andy Geiger in June 2004 after admitting that he loaned $6,000 to a former recruit, Aleksandar Radojevic.
Judge Joseph T. Clark ruled that O'Brien broke his contract by giving the loan. However, the judge said the error was not serious enough to warrant firing. There was a provision in the contract that said O'Brien could only be fired after a finding of wrongdoing by the NCAA. But Geiger fired O'Brien six weeks after the coach admitted the payment and well before any evidence was presented to the NCAA.
There will be a hearing to determine monetary damages for O'Brien.
O'Brien, 55, was seeking $3.5 million in lost wages and benefits after he was fired. With interest and other damages, he could receive nearly $9.5 million.
He coached the Buckeyes for seven seasons, leading OSU to the 1999 Final Four, one Big Ten tournament championship and two Big Ten regular season titles.
But those accomplishments are in peril as the NCAA infractions committee continues to mull a list of seven alleged violations committed during O'Brien's reign. Most of those center on illegal extra benefits provided to former player Boban Savovic.
The payment from O'Brien to Radojevic came to light in 2004 as part of an unrelated lawsuit involving Savovic's situation.
The NCAA is expected to hand down a ruling in the OSU case sometime in March. Ohio State self-imposed a ban for last season's NCAA Tournament. School officials do not expect another ban.
But the school could be forced to repay NCAA Tournament revenues, amend records for the time period Savovic played, take down championship banners from that time period and also lose scholarships as a result of these allegations.
Geiger announced his retirement in January 2005.
O'Brien was replaced in July 2004 by Thad Matta, then the coach at Xavier. He is in his second season as the OSU head coach.
Ohio State Statement
Ohio State issued the following statement in reaction to the judge's decision:
Statement from Vice President and General Counsel Christopher M. Culley: "The Court of Claims of Ohio has ruled that Coach O'Brien breached his contract, but has also concluded that the breach was not so egregious as to frustrate the essential purpose of the contract. In that respect, the court decided that the coach's breach of trust did not warrant his dismissal.
"The university respectfully disagrees with that view. The next step in this process is phase two of the trial, on the issue of damages. The court's present decision will not be subject to appeal until that phase has been completed."
Statement from President Karen A. Holbrook: "As a member of the NCAA, fully supporting its values, Ohio State works diligently to follow that organization's highest standards and adheres strictly to NCAA bylaws. In this matter we have acted forthrightly in compliance with NCAA rules and in the best interests of the athletics program and the university."