Thursday, November 12, 2009

Jamie's Hail Mary.

Be forewarned. This is long, complex, and highly likely to be more enjoyable for me than for you. If cockamamie scheming, impossible gambits, and mostly ridiculous* fantasies well-outside the realm of reasonableness (and probably accuracy) are not your thing, just come back tomorrow. We'll be back to your regularly-scheduled news and analysis very, very soon. But if you're up for a little journey, indulge me:

*Remember, there's a big difference between mostly dead and all dead. The Shyster told me so.

I'll be honest up front: this is not the potential factual scenario I alluded to last night. I still might go to that at some point. In fact, I'm sure I will. But I've hit an interesting point in my blogging career: I have fabulously smart readers. More than a few of you commented or e-mailed in asking a whole lot of questions that can be pretty well summed up like this:

Since the post-nup was executed for the purpose of shielding assets from creditors, is it legally enforceable?

Now, your questions and comments raised this point in a number of different contexts: bankruptcy, fraud, conspiracy, tax evasion...heck, there might have even been a treason allegation or two. So let's talk.

First, the sort of arrangement the McCourts engineered is common and (usually) perfectly legal. There is nothing necessarily wrong about a couple structuring their assets in such a way as to obtain favorable tax or legal positions. So when does that sort of agreement lead to liability? If the post-nup was executed to avoid claims of specific creditors, that's bad. If the agreement was made because the couple reasonably anticipated imminent liability, that's bad. If the document was signed, but the factual situation hidden from creditors--i.e., if Jamie borrowed money secured by the Dodgers without the lender knowing she had divested herself of ownership--that's bad.

It's just fine that, if Frank was to go bankrupt, Jamie would have the wealth attached to the houses. That's what the post-nup is for. It's perfectly ok that if the residences lost all value and the bank tried to go after Frank's equity in the Dodgers, he would tell it to go pound sand. That's precisely what the post-nup is for. Many of you have structured your assets to protect them for your benefit or your children's. Many of your parents may have done the same. It's usually just fine.

With that in mind, I am going to offer a bold proposal by which Jamie could make an end-run for the Dodgers. But first, I have to say a few words:

What follows is hypothetical and for entertainment purposes only. It is not legal advice to Jamie McCourt. You should not rely on this strategy in your own $1.2 billion multi-million dollar divorce. You should never press these buttons in your lawyering videogame. You should bench this idea in your legal strategy fantasy league. Get the picture? This is probably a terrible idea, but damn is it a lot of fun to think about.

1. Jamie should drop her motion for spousal support right this very minute. 

"Now Josh," you're saying, "haven't you written multiple times that Jamie is doing exactly what she should be doing in her demands? Didn't you say she should be asking for the moon?"

I sure did. But that was before I saw how difficult it's going to be to fight that post-nup, assuming Frank's version is true as to the important parts. So here's the thing, for the sake of this exercise: Jamie is flat screwed. She legally signed away all her rights in the primary asset of the marriage. All she's left with is real estate she bought between 1998 and 2008 for approximately $120 million, including her listed capital improvements to the residences. Now, tell me something: expressed as a percentage, what do you figure super high-end real estate is worth now compared to a couple years ago? Especially in Southern California? You all will need to tell me; I don't know. Haven't lived in SoCal for about 6 years, and I wasn't in the market for Malibu beachfront property when I was there.

I really don't know what the property is worth. I do know that she lists nearly $65 million of debt on the real estate, and let's say that number can be pumped up a little bit somehow. For purposes of this Hail Mary, anyway. Point is: can Jamie make a plausible case that the liquidation value of all her property is less than her total debt? Time for Jamie's Hail Mary to begin.

2. Jamie should stop paying her bills. 

Mortgages, utilities, lines of credit, cell phones...whatever in the world Jamie owes, she should stop paying immediately. For this Hail Mary to work, so to speak, she'll need to send the receivers way, way down the field into quadruple coverage. And what's more, she'll need to throw into it pretty soon. Basically, she needs to piss off as many creditors as she possibly can. The paper boy should be angry. She needs to make her goal in life to make everyone who extended her any credit hopping mad.

3. With any luck, her creditors will kill her for her defaults, and she'll definitely owe more than the liquidation values of the real estate.

At this point, the mortgage-holders will start foreclosing on her property. Don't be scared, everyone: this is what we're going for. Someone, at some point, will realize they're not going to get paid. And that someone will think to himself, "but this is Jamie McCourt! She owns the Dodgers!" Au contraire, mon mortgage lender. Frank does. And he's hiding behind his post-nup wall, telling Jamie's creditors to pound sand. But little does he know that all hell will soon rain down upon him.

4. Jamie's creditors will force her into bankruptcy.

Again, this is ok. All part of the plan. The receivers are getting close to the endzone, and it's almost time for Jamie to heave up her prayer. She winds up and starts her crow-hop...

[Warning: law ahead]


The Uniform Fraudulent Transfer Act, as enacted in California, provides that a creditor harmed by a fraudulent conveyance of assets can get the judge to basically reverse the transfer if, indeed, it was "fraudulent." Now, the point of this story isn't to get all law-reviewy on you, it's to have fun. If you want to debate the hard law of the UFTA's application in this case, feel free to comment or e-mail. I will definitely get back to you.

There are two kinds of fraud covered by the UFTA: actual and constructive. An actually fraudulent transfer is one made with intent to "hinder, delay, or defraud any creditor." A constructively fraudulent transfer occurs when an exchange is very unbalanced in value, and was made either in response to or anticipation of a whole lot of debt. I mean, it's way (way) more complicated than that, but hopefully this works for now.

Among the factors the court will consider in analyzing "actual" fraud are whether the transfer was to an insider (check), whether the person transferring an asset still retains control of it (possible check), if there was a lawsuit, or the threat of one (likely check--businesses get sued all the time), and whether there was an extreme imbalance in value exchanged (check).

Lastly, the transfer is probably fraudulent if it leaves one of the parties legally insolvent--that is, their debts exceed their assets.

Sheesh, that was a lot of law-talkin'. Ready to get back to our warring couple? I sure am.


So Jamie's creditors will say that the post-nup was a fraudulent transfer under the UFTA. They'll argue both fronts, actual and constructive. If the post-nup left Frank insolvent (remember, at the time he bought the Dodgers, he took on $421 million of debt for a $371 million purchase)...well, that would help a lot. It's the funniest thing: Jamie will go through all of these hoops in the hope that the judge will find the couple's post-nup to be fraudulent--including her role in creating it.

Now, this isn't guaranteed to work. In fact, there are lots and lots (and lots and lots) of legal arguments against it, Jamie's bad faith in executing this plan included. But walk with me:

The bankruptcy judge will allow a creditor to go after the Dodgers. Now, normally, an attack under the UFTA only reverses the transfer as to a specific creditor; in usual circumstances, the rest of the creditors can't jump in. But with Jamie in bankruptcy (a federal sort of thing), different rules apply. There's some precedent out there for voiding the post-nup in its entirety, especially if the judge believes it's the only way to make sure all of Jamie's creditors get paid. So think about where we are:

Jamie is dead broke, but she didn't lose. Instead, she's successfully beaten back the post-nup, and voila! The Dodgers are community property again! It's my opinion that there is significantly more equity in the Dodgers than in the real estate--Jamie wants her fingers in the club, not the property. And she's got it. She's demolished her credit, burned through maybe 20% of the couple's net worth, and undertaken a course of action which only a tired, overworked blogger could possibly conceive.

But who cares? She's got her 40%! And in the process, she's probably made it impossible for the McCourts to keep the Dodgers. Frank won't have the money. Jamie, if she really does have the backers, won't have the credit (or the credibility). The team will be sold, and each McCourt will walk with a hundred-million or two. And the Dodgers move on, merely a pawn in one of the most outrageous legal dramas in recent memory.


In all seriousness, folks, there's a host of problems with this scenario. But the UFTA is real, and there's a heck of an argument that the post-nup could be within its reach. It's more believable than Jeff Kent breaking his wrist washing his truck. And if Jamie's lawyers haven't at least thought of the UFTA, they're doing a terrible job. If Frank's right about the story behind the post-nup, and there's not a smoking gun somewhere (like the situation I said I would tell you about today before this popped up), Jamie might be feeling a little desperate. And you know what desperate people do?

They go nuclear on a hundred-million bucks of real estate in a barely plausible, highly suspect, and horribly misguided attempt to circumvent disastrous post-nups. In other words, they throw Hail Marys.


  1. This is fantastic.

    Question -- and I'm not a lawyer, so bear with me for any key legal phrases I misuse.... What does Jamie stand to lose if she executes this plan but it doesn't work?

    Say for example the judge doesn't play his part -- he refuses to void the post-nup and Frank retains ownership of the Dodgers.

    Now Jamie is bankrupt, doesn't have the Dodgers, and all her property is foreclosed upon... does she even have a pot to piss in?

    Whereas if she goes her current route she will maybe -- even likely -- lose control of the team, but she'll still be very, very rich... right?

    Or do I have things wrong?

  2. Humma--

    She's got everything to lose, which is one of the reasons this won't happen. But there's just something I find so enjoyable about it.

  3. Sure, I agree. It's fascinating to contemplate someone walking up to the roulette wheel, putting their life savings on double-zero, looking up at the croupier, cool as a cuke, and saying, "Spin that bad boy."

  4. This comment has been removed by the author.

  5. My experience is that both parties often see the benefit in a settlement in advance of going to trial.

    Here's a scenario: Frank very much wants to maintain control of the Dodgers; Jamie's strongest concern is to escape the marriage as little wounded as possible. (This would include economic, public, emotional, and social injury.)

    In this case, won't Jamie's advisors work to minimize her present animus toward Frank, with the understanding that this will greatly reduce her exposure to injury? If this is the case, the threat of your Doomsday Defense might be enough to help Frank's team see the wisdom in convincing him that (1) there is a point in claim and counterclaim past which he must envision a devastating defeat, and (2) a settlement - even one which is vile to his sensibilities - is his ONLY REAL CHANCE to cobble together some form of ownership arrangement?

    Selling Frank's team on the willingness of Jamie's team to go to the mat on this matter is her best hope. Selling Jamie's team on a settlement that leaves Jamie with more assets and a far better reputation than she appears to be able to reasonably expect at this juncture is his best hope.

    Educate me, please.

  6. I think what starts to become clear is that Frank needs to make a big decision. It has obviously been one of his life time desires to be a baseball owner. Now he owns a storied franchise and is very much "in the money" on the transaction. Can he ever walk away from that? I don't think so. He won't get another shot. I think he goes to the mat on this one. When push comes to shove, does Jamie blink first? Probably. I personally hope that they are forced to sell the team, neither are good for the Dodgers or baseball.

  7. This is great stuff... Like a reality show!

    Debt Help CA

  8. That would totally make Frank McCourt look like a jerk. And totally make Jamie McCourt look like a jerk. Then again, where are we now?

  9. Maybe someone can find a white stallion and have Peter ride in from Pasadena to save the day and allow the parking lot attendant (Thanks, T.J.) and the fair (?) maiden to duke it out in court. The nice thing about Fraudulent Conveyance is that is never goes away; it's shelf life is as long as the unsolved murder. How about appointing a Receiver to run the Dodgers so the battle can be a full 24 -7 running reality show for Los Angeles and all of baseball? People (especially from Brooklyn) were mad (mild phrasing) at Walter for making a very wise business decision (any business leader/owner would have made that same decision with zero regrets). Too bad the Dodgers went from a real community involvement to an entertainment company that had no idea had to run a baseball team (also see CBS - NY Yankees) to a specialist in debt and legal protection. Neither husband or wife should take time away from the business at hand and think about the 2010 season or beyond. Let the $750 bloodhounds loose to represent the McCourts and let the real games begin. The prelude to the World Cup......

  10. Bill--

    The UFTA, as enacted in California, has a pretty hard deadline of seven years from the time of the transfer or obligation. The litigation would be over when the clock started ticking--when the thing was originally made, when it was modified, or again at the last time action was taken in furtherance of the plan.

  11. Hey Josh, this is Curt from school.

    The legality of your "hail mary" tactic is now before the Supreme Court. In 2005, a federal law was passed that supposedly prohibited debt relief agencies (which debatably includes bankruptcy attorneys) from advising their clients to take on more debt in order to get more leverage in bankruptcy. (Bankruptcy Abuse Prevention and Consumer Protection Act. Pub.L. 109-8, 119 Stat. 23

    A small firm from Edina is now taking this issue to the Supreme Court. I think they're challenging that both 1) attorneys can't be "debt relief agencies", and 2) First Amendment, Freedom of Speech. FYI

    Milavetz, Gallop & Milavetz, P.A. v. United States; United States v. Milavetz, Gallop & Milavetz, P.A.

    Great Blog!

  12. Not to mention attorney-client privilege.

  13. I’m impressed!!! Really informative blog post here my friend. I just wanted to comment & say keep up the quality work. Marvelous article.

  14. I have never seen this type of post from you,You tried something new!! Good for you!
    I have always afraid I'll mess when I try new things. What made you decide to try something new? I want to motivate you.
    Law Essay Help