Wednesday, November 11, 2009

Frank's side of the post-nup story.

I won't beat around the bush. Frank:
In early 2004, Jamie proposed that we execute a written marital property agreement that would expressly provide that the residential real property and all of the other assets held in her name [going back to the Boston days] would remain as her separate property (thereby protecting these assets from claims of my business creditors), and all of the assets held in my name [including the Dodgers] would remain my separate property.
You might remember Jamie's thoughts on the post-nuptial agreement which gives Frank the Dodgers and Jamie the couple's residences. In case you don't, here's an example:
It was never my understanding that the purported effect of the document Frank asked me to sign in 2004 was to transfer the bulk of our assets to Frank. I was not represented by independent counsel in connection with that agreement. I was not told that by signing the agreement I was supposedly divesting myself of the vast bulk of the wealth we had accumulated during our then 25 year marriage. I was simply told that I needed to sign the document because we were moving to a "community property" state and that we therefore needed to make sure that our homes remained separate property beyond the reach of our myriad business creditors.
So that's her story. "Look, this document was put in front of me, my loving husband asked me to sign it, and I did." If you squint your eyes, tilt your head 30 degrees to the right, and hum softly (and forget she's a lawyer), you can see her account of things making sense.

Frank, of course, does not feel this way. Thanks to a reader e-mail (you guys are the best!), we have a brief glimpse into his side of things. It's my understanding that I have four pages of a hundreds-of-pages-long document, so this is by no means definitive. But gosh, it sure is interesting. Let's go crazy, Broadway Dodger Divorce style!

  • Back to their time in Boston, the McCourts had a "long-standing practice" of dividing up their assets such that she had residences and personal property while he held ownership interests in the business entities. 

    • This would protect much of the family's wealth in case Frank's aggressive business ventures went south. Remember that Frank's been called the "king of leverage." It's not unfathomable that, had the timeline been a little different, the businesses might have been demolished in the recession and the split asset plan would be extremely beneficial.

  • Frank says it was Jamie who grew adamant that her assets had to remain protected upon their move to California, as the laws there differ from those of Massachusetts. 

    • "She said she did not want to have any risk of liability if any of my present or future business ventures, including the Dodgers, led to creditor claims against me."

  • As quoted above, Frank claims that Jamie asked for the continued separation of the assets upon the move to California.

    • He says they had "several discussions" with their attorneys about the topic, and the couple had no disagreements about the intended effect of the document.
    • The agreement was signed on March 31, 2004.
    • Frank claims he entered into the agreement to honor Jamie's request to make sure she was independently wealthy in case something happened to the businesses or to Frank.
  • According to Frank, Jamie never questioned the validity of the document--expressly or otherwise--until the summer of 2009.

    • Frank's getting tricky with words here. Jamie says that in 2008, they "both instructed [their] estate planning attorney to prepare new agreements" which would make the entirety of their assets community property. Jamie might not have attacked the document's validity, but she clearly expressed her discomfort with it.

  • Still, though...twice more in 2004 the couple executed documents ratifying the original agreement, and Frank took further steps in 2007 and 2008 to divest himself of interest in the couple's residential holdings.

    • Frank acknowledges that as far back as 2007, Jamie began making noise about putting all the couple's assets back into community property. Their estate planning attorneys drew up a Community Property and Transmutation agreement. Sounds terrifying. As Frank's lawyer wisely notes, these steps would be wholly unnecessary if the original agreement was somehow invalid.
  • Frank never signed the new document, and told Jamie in May 2009 that he had no intention of doing so.

    • You might want to sit down, and those with cardiac problems should take some deep breaths and consider not reading on, but: Jamie wasn't very happy about this. Frank's legal filings contain copies of Jamie's e-mails on the matter which I'd love to see, but don't have.
  • The couple separated for good when Jamie left on that July trip to Israel and France with Jeff Fuller.
So where do Frank and Jamie's accounts really differ?

Mostly as to Jamie's intent (or lack of it) with respect to the post-nup. Frank says it was exactly what she wanted, Jamie says she had no idea what she was giving away. Jamie's arguments here are significantly compromised by a few different factors.

Many of the standard defenses to contract formation don't fit here. Jamie does not seem to lack capacity to contract, she's certainly not an infant, and I'd be awfully surprised if she suffers from a mental illness. Did Frank just get her wasted  before she signed it? She doesn't allege it. She does ask for a wine budget in her monthly expenses, though...

The thrust of Jamie's argument will be that there was a mistake as to a key element of the agreement--namely that the couple did not know the full effect of the post-nup. To me, this seems undermined by the couple's history of splitting their assets to shelter their homes and other property from business creditors. The very way they chose to do this was to divide their property. Jamie might not have contemplated a divorce, but it sure sounds like they knew what they were doing.

Jamie might also say that Frank understood what the post-nup did, but she did not. It's true that a contract might be invalid if one of the parties is harmed by a facet of the agreement that person didn't understand.

The problem is that, sometimes, you take the risk of a faulty assumption. You might contractually agree to bear the burden of a mistake, or you might know you don't have enough information and go forward anyway. Or, a court can allocate the risk of a mistake to you, if it is "reasonable" to do so. Jamie McCourt is a lawyer. A court can hold her to a much higher standard, reasoning that with her sophistication and background, she will be presumed to mean what she signs.

Jamie's next strategy here might be to assert that the agreement between the two cannot be valid for lack of consideration. Basically, for a contract to be enforceable, each party must give something up to get something back. Jamie will say that what she got out of the post-nup--the residences--is so much less valuable than what Frank received--the Dodgers--that the agreement should be unenforceable.

I don't like her chances on this one. While consideration is a requirement, equal value need not be given. It is enough that each party knowingly gives up one thing to get another. Especially among people of considerable sophistication, a rule of thumb is to let the parties decide how much is enough.

From my perspective, unless Jamie can prove that Frank was misleading, fraudulent, or otherwise acted in bad faith, she's going to have a difficult time getting out of the agreement. Just because she later decided she gave up too much in the deal doesn't mean she can just get out of it. See Juan Pierre, 5 years, $44 million. The kind of smoking gun I'd look for is Frank concealing the fact that the Dodgers were included in the agreement. Because of her heightened burden, I don't think she can win on this unless Frank took active steps to hide the fact that ownership of the club was involved.

Jamie's last haven might be that Frank used his position as her husband and manager of the family assets to unduly influence her to sign the agreement. She paints the picture that he essentially put the document in front of her, and told her it was necessary for Jamie to sign it as part of the couple's move to California. I just don't like this argument. An agreement related to a division of the couple's assets is too important to allow Jamie, a lawyer, to say she didn't think she needed to check it out. Absent some shady conduct on Frank's part in inducing her to sign the post-nup, I cannot see a court giving Jamie the benefit of the doubt here.

So what's the bottom line?

Frank's declaration offers some insight into the demise of the McCourt marriage. His assertion that Jamie was behind the split of the assets in the first place is interesting, as are his claims that he let her call herself a co-owner of the team "in the interests of family harmony." While there's all kinds of information out there which could change my opinion, I see Frank as having the early advantage in the battle for the Dodgers. Crazy things happen in courts sometimes, and Jamie's going to pay some great lawyers lots and lots of money to make my analysis above look like Berenstain Bears work. "How did you get out of your Pack 'n Play, Josh?" they will ask. But these are the bloggy risks you take.

In this little corner of the internet, we're concerned primarily with two things: the post-nup and the McCourts' net worth. Resolution of the asset-transfer issue will pave the way for the permanent disposition of the Dodgers. If Frank wins on the post-nup, he probably keeps the Dodgers. If Jamie wins, we'll have to wait to see if one has enough money to buy out the other. Based on the very limited information I have in front of me, I like Frank's chances more today than I did yesterday.

This is all I can manage for the day, but tomorrow we'll discuss one potential factual scenario under which Jamie signed the document that would make for some very, very explosive litigation.

And if you didn't catch it earlier, this link will take you to the little I've seen of Frank's documents.


  1. Thanks for taking the time to provide a little insight into this sordid mess. Much appreciated. Keep it up!

  2. To me it sounds as if their agreement was made with the purpose of, if not defrauding, at least playing games with, potential creditors of Frank's who otherwise would have recourse to the properties which the McCourts tried to shield by placing in Jamie's name. If that is true, does it give Jamie grounds to challenge the validity of the agreement even thugh she had a hand in the deception?

  3. It does not. But hold that thought, and check back later today.

  4. It definitely seems that the McCourt's probably lived a very levered lifestyle and that Frank's businesses were volatile and most likely had his personal guarantee tied to them. I don't think this transfer of assets had so much to do with moving to a community property state as it does with the fact that the Dodgers were bought for basically no money down and a big chunk of short term debt. The two of them were definitely preparing for the possibility that the business could fail. If that is the case, doesn't it mean that the post-nup stands and Frank keeps the team?

  5. Mike--maybe. And you hold that thought, too. Life intervenes at the moment, but I'll get something up later.

  6. Frank and Jamie McCourt's post nup agreement in 2004 is what many Real Estate Developers do to protect their residential assets from creditors. It makes financial sense so there is some protection if one of their business declares bankruptcy.

    The thing that perplexes me, is why Jamie is feigning ignorance on the 2004 post nup, and pushing for a new post nup since 2007, which means to me that one of them needed cash. I think Jamie is better off stating the 2004 post nup agreement was to shield creditors from their total assets, not to divy up assets in a divorce.

  7. Okojo--

    Maybe so, but she probably can't pick and choose at this point. If the goal of the agreement was to shield the assets from creditors...well, isn't she a de facto creditor now? The fact that there was an unintended consequence is probably relevant only as far as that consequence is completely unforeseeable. To me, she (or one of her lawyers) were just oblivious to the ramifications of the agreement as it would affect her in a divorce. Unfortunate, but that's life.

    As to why she started fighting *guess*--and that's all--is that, at some point, she figured out what she'd really given away and freaked out. At that point, maybe things were already rocky and Frank decided he should fall back on the document and let things run their course. I wonder if he'd contemplated divorce when the post-nup was formed. By his account, she asked him to initiate it.

  8. I don't buy the argument that Jamie started fighting for a new post nup agreement, because she was freaking out about the division of assets. She had over $152 million in prime real estate, in which she probably used to open some crazy lines of credit. I do think either Frank or Jamie has some weird behavior problems if they are buying houses next door at obscene prices.

    Jamie bought these houses when the housing bubble was deflating,but close still over inflated. She probably have mortgages way over the current value of her residential holdings, but still an incredible amount of wealth.

    She may had started to fight because of either her assets were sinking or Frank's assets. My guess is that one of the McCourts needed cash, and the other refused. Given the main battle right now is the post nup,not the loans.

    I don't think Jamie is a de facto creditor, as much as this is a break and division of assets. As you stated in a previous post it isn't going to be 50/50, but she is entitled to a larger share of their assets.