Wednesday, December 8, 2010

Frank McCourt is not dead yet.

I'm tempted to drop a Princess Bride quote, and say that Frank is only mostly dead, but even that might too strong. While fans are surely weary of this entire saga--and, really, we're less beating a dead horse than we are a jar of glue on most of this stuff--Frank perseveres. Barring a meeting of the minds on a settlement that could finally put this issue to bed, it looks like we're heading back to court.

At issue will be the characterization of the Los Angeles Dodgers and related entities as either 'community' or 'separate' property. The MPA failed to effectively transmute the Dodgers into Frank's separate property, and, for all intents and purposes, the MPA is in the rear-view mirror. But that doesn't mean Frank's out of options.

Characterization starts with presumptions. In California, property acquired during the marriage is presumed to be community property. This means that a spouse claiming that certain property is her own separate property bears the burden of showing that the property in question should be hers. In baseball terms, think of it this way: a tie goes to the spouse asserting community property status.

But...certain actions can shift the presumption. "This rule can be altered by agreement of the spouses. For example, spouses can indicate their intent with respect to the character of the property initially by specifying the form of title in which it is held, or spouses can later transmute the character of the property as between each other." In re Marriage of Haines, 33 Cal. App. 4th 277, 291 (1995). Indeed, California Evidence Code Section 662 offers the common law presumption: "The owner of legal title to property is presumed to be the owner of full beneficial title. This presumption may only be rebutted by clear and convincing proof."

Sorry about that. I figured it was the best way. Let's move on.

Here's where it gets sticky: case law is mixed about which preference wins out between the family-law-specific community property presumption and the general titling presumption. One of the many reasons the MPA was tried before this alternate theory is that transmutations--affirmative steps taken to transform property from community to separate and vice versa--are stronger than simply titling an asset in one spouse's name. But the MPA is, of course, no more.

The family-law-specific presumption of undue influence has been found to trump the more general titling provision. Judge Gordon found no undue influence as far as the MPA is concerned, but limited his decision to something less than the entire scope of the marriage. I do not believe Jamie's camp would be barred from arguing undue influence as it concerns titling the Dodgers in Frank's name. 

Boiled down, it appears likely that Frank will argue that, by titling the Dodgers in his name alone, the McCourts clearly demonstrated an intent to make the Dodgers his separate property. Jamie will marshal several counter-arguments, most certainly including a lack of intent to separate the property beyond creditor-protection purposes, the use of the property to fund the entire marital lifestyle, and issues like undue influence. 

As you can appreciate, because of the conflicting presumptions, the chain of how this unfolds is very much an "if this, that; if that, this" sort of situation. Each step is dependent on resolution of a technical issue, and we're a ways off from figuring out exactly how this is going to look. For today, the takeaway is that there are very real issues left to be addressed before we can get beyond the divorce and on with the organization's life.

Tuesday, December 7, 2010

Bingham mobilizes.

Bingham McCutchen, you probably know, was the law firm under which Larry Silverstein drafted the Marital Property Agreement that has been the subject of a great deal of scrutiny. It is widely believed that whichever McCourt loses out in the litigation--and, for the moment, that looks like Frank--will go after Bingham for its role in the circumstances which led us to today. Naturally, and quite understandably, Bingham will not simply acquiesce. Tonight, Claire Papanastasiou, the firm's spokesman, released the following statement:
The Court’s decision turns upon a very technical analysis of complex issues of Massachusetts and California marital property law. These are issues on which the lawyers and the foremost legal experts have differing opinions. The order clearly does not make a finding, nor base its conclusions on any finding, that Larry Silverstein engaged in any misconduct. Instead, the opinion places the focus on the proper question of what did the parties intend in doing their property arrangements in 2004. It is our hope that the McCourts will resolve their differences amicably.
No one will disagree that the way Larry Silverstein handled the MPA was something less than best practices. Bingham's potential liability largely hinges on whether its actions, or the actions of its attorneys, proximately caused harm to whoever sues the firm. In other words, would whoever sues Bingham have avoided his fate but for Bingham's actions? The discussion is probably a bit premature until we get through the asset characterization litigation that looks like the next step in the McCourt divorce.

It's a complex issue, and we'll get to it in due time.

The MVP of the McCourt divorce.

This morning, Los Angeles County Superior Court Judge Scott M. Gordon issued his tentative Statement of Decision on the validity of the Marital Property Agreement at the heart of the McCourt divorce. Long story short, Jamie got what she wanted. Judge Gordon tossed the MPA altogether, possibly rendering the Dodgers community property, pending the outcome of additional litigation. This does not make Jamie McCourt a co-owner of the club; she won't be returning to the office any time soon. It does mean that Jamie may be entitled to half the value of the couple's marital estate.

I think the easiest way to do this is to give you a few brief notesfrom the decision and then put them in context. The foundation of the decision is that the MPA, when considered under the California laws germane to such things, did not sufficiently demonstrate that the McCourts had a mutual understanding of relevant terms of the agreement. While Judge Gordon was clearly skeptical of just about every element of this process--and, really, who wasn't?--he issued a decision that mostly amounts to this: when you have two radically different versions of what looks like the same document executed and notarized, how can either be said to be the controlling agreement?

  • The Marital Property Agreement was a transmutation agreement as defined and governed by California Family Code Sections 850-852. 
    • This is important because, as discussed below and several times since the trial began, these particular provisions place specific requirements on marital property agreement. Further, these sections deny the admissibility of extrinsic evidence to prove the parties' intent as to what property they mean the document to affect, and how that property should be affected. Simply put: when the issue is analyzed under these Code sections, the document itself is viewed as the ultimate measure of the parties' intent.
  • The Marital Property Agreement was not an effective transmutation under the Code provisions above.
    • The MPA, mostly (but not entirely) due to the existence of conflicting Exhibit A's, failed to demonstrate that the parties were ever in agreement about what the document was meant to do. Therefore, it is pretty much meaningless.
  • There was no meeting of the minds--mutual assent--on either of the versions the McCourts signed in 2004.
    • Sorta hard to enforce a contract that neither party agreed to, isn't it? California law requires that a marital property agreement contain "express declarations" of the property to be transmuted, and the conflicting Exhibit A's make finding compatible "express declarations" nearly impossible.
  • Jamie McCourt drove the creation of the MPA, and was not defrauded or disadvantaged by its terms.
    • While the asset allocation was far from even, she got the benefit of protection from creditors as well as her own nest egg. The Court roundly dismissed allegations of undue influence and constructive fraud in the MPA's creation.
  • Judge Gordon notes that "[t]he parties argued at great length and presented a great deal of evidence with regard to the credibility of the other."
    • This mostly goes to Frank's argument that it is absurd for Jamie, a lawyer, to say she didn't understand the MPA, and to Jamie's argument that Frank could not possibly remember going over the MPA in detail given that he couldn't remember much else from the day it was signed.
  • Judge Gordon proceeded to find neither party's testimony concerning the content of the MPA credible.
    • He also specifically pointed out that the draft of the MPA that came to be known as the California version--the one giving Jamie the homes but leaving the Dodgers as community property--was never presented to either McCourt for review prior to the execution of the six supposedly-identical copies of the MPA.
  • There wasn't enough admissible evidence to persuade Judge Gordon that he could rule the conflicting Exhibit A was, truly, nothing more than a scriviner's errror.
    • Drily, Gordon wrote, "[Frank McCourt] argues that the California version of Exhibit A is an obvious drafting error when viewed in the context of the agreement as a whole, without resort to extrinsic evidence, and attempts to support this position with extrinsic evidence."
That's the nuts and bolts of the matter. The combination of conflicting Exhibit A's and California's strict guidelines on what can be used to show the parties' intent pretty much spelled doom for Frank McCourt's case. Judge Gordon, in eliminating constructive fraud and undue influence, grounded his decision almost exclusively in the MPA's failure to show, by its terms, mutual assent. 

Without its shameful cousin, the Massachusetts Agreement would have probably demonstrated a sufficient meeting of the minds to survive legal challenge. Maybe Jamie would have fought the other issues differently. Maybe she could have persuaded Judge Gordon that the MPA still didn't contain the sort of "express declaration" required by California law. Maybe she could carry the day on a completely separate legal theory.


For today, though, I'd prefer to deal in what we know. And what we know is that the existence of the California Exhibit A--just a single piece of paper, really--sure looks like the deciding factor in a billion-dollar divorce.

Judge Gordon channeled a late (and poetic) colleague.

In discussing the McCourts' credibility, Judge Gordon cited a 1908 Missouri case in which the parties' credibility was also at issue. The text, as it was selected for use in the McCourt decision:
Truth does not always stalk boldly forth naked, but modest withal, in a printed abstract in a court of last resort. She oft hides in nooks and crannies visible to the mind's eye of the judge who tries the case. To him appears the furtive glance, the blush of conscious shame, the hesitation, the sincere or the flippant or sneering tone, the heat, the calmness, the yawn, the sigh, the candor or lack of it, the scant or full realization of the solemnity of an oath, the carriage and mien. The brazen face of the liar, the glibness of the schooled witness in reciting a lesson or the itching over-eagerness of the swift witness, as well as the honest face of the truthful one, are alone seen by him. In short, one witness may give testimony that reads, in print, here, as if falling from the lips of an angel of light and yet not a soul who heard it, nisi, believed a word of it; and another witness may testify so that it reads brokenly and obscurely in print and yet that about the witness that carried conviction of truth to every soul who heard him testify.
Creamer v. Bivert, 214 Mo. 473, 481 (1908).

About a dozen words later, Gordon wrote, "The testimony of  both parties as to their lack of knowledge and attention to the details of the MPA is not credible."


Judge Gordon's ruling on the McCourt MPA.

McCourt - Statement of Decision

Jamie wins.

Well, that wait didn't last long. As reported by several outlets, Judge Scott Gordon has thrown out the MPA at the heart of Frank and Jamie McCourt's divorce case. While we're as yet without the specific reasoning behind the decision, I suspect it is deeply rooted in Frank's failure to persuade the court not to evaluate the MPA under California Family Code Section  852(a). 

As you might recall, § 852(a) specifically forbids the court from examining extrinsic evidence showing Jamie's intent with the document. Put simply: the text of the MPA controls. And when faced with two documents conflicting as to a material term--ownership of the couple's principal asset--what choice does a judge have but to toss the agreement entirely?

A couple months back, I speculated: 
[T]he threshold question is whether Judge Gordon will consider much beyond the words on the agreements themselves. Because of the conflicting Exhibit A's, a determination that § 852(a) controls the analysis would be a big step in the winning direction for Jamie. 
The guess here is that big step was, indeed, taken.

The countdown is on.

As we wait for colored smoke to emanate from Judge Scott Gordon's chambers, so to speak, it's quite apparent that no last-minute settlement will keep the fate of the Dodgers out of the court's hand. Not yet, at least. The Times' Bill Shaikin has a nice summary of today's possible outcomes here, and the takeaway is this: while Judge Gordon's decision resolves the single most important moving piece in this litigation, the controversy won't end here unless the parties so desire.

Yes, there is the likelihood of future legal challenges. If Frank wins, Jamie will say that the MPA might have given Frank title to the Dodgers, but it doesn't prevent her from seeking money from Frank to make up for the disparity in assets. If Jamie wins, Frank will say that, as the Dodgers were purchased with clearly-traceable proceeds from a sale of an asset he owned prior to the marriage, the club should be his despite the failure of the MPA. And either party, in a loss, would surely contemplate appealing the decision, as well as potential litigation with the law firm Bingham McCutchen.

As Shaikin notes in his piece, a possible effect of today's ruling is that removing the debate over the MPA could pave the way for more productive settlement negotiations. The theory behind this isn't complex: with the main issue resolved, the parties will likely have more similar evaluations of the case than they did before. This would make it easier to reach an agreement on how to end this drama peacefully and permanently.

Back later today as events warrant.

Wednesday, December 1, 2010

Time is running out.

Yesterday was another odd day in over a year filled with them. Let me get you up to speed, and then we'll discuss the implications of the day's events.

Ever since the trial to determine the validity of the MPA ended in September, the parties (and their representatives) have been under an order to keep settlement discussions confidential. This order covered details of the formal mediation process, led by Judge Peter Lichtman, as well as any informal negotiations between the parties. With occasional exception, that order has been followed.

Last week, we learned that Judge Lichtman would soon put a formal proposal on the table, and the parties were advised that a failure to agree by the end of November would likely leave the power to decide the issue solely with Judge Scott Gordon. That brings us to yesterday.

At about 3:30 Pacific, Frank's camp issued the following statement:
Frank fully supported the mediation process in the hopes that it would result in an agreement that would bring long-awaited closure to this matter. 
It is clear that Judge Lichtman, who acted as the settlement judge in this matter, went to great lengths to bring the parties together.  He presented a thoughtful, detailed proposal that clearly took significant time, energy and expertise to prepare. 
After considerable deliberation, Frank accepted Judge Lichtman's proposal.  He felt it was the responsible thing to do for his family, the Dodgers organization and the entire community. Unfortunately, Judge Lichtman has declared the parties to be at impasse.  We can only conclude that Jamie rejected Judge Lichtman’s settlement proposal and is allowing this matter to drag on further.
Talk about burying the lead! It was a move clearly intended to paint Jamie as the roadblock in settlement discussions. Judge Lichtman, a respected mediator, put an offer on the table. Frank accepted, Jamie didn't. Pretty easy PR play from there.

When reached for comment, one of Jamie's attorneys expressed surprise about the statement, offering little more than the following:
We believe that the Court ordered complete confidentiality regarding the settlement proposal and everything related to it, and we believe it would be a violation to say anything about the proposal or anything related to it. 
Busy day, huh? Jamie turned down what was likely the (lucrative) last, best chance to settle the case prior to a determination of the MPA's validity, and Frank's camp decided that the benefits of publicizing her rejection of the deal outweighed the risk of running afoul of the Court's confidentiality order. These decisions--both calculated risks--might provide a great deal of information about the relative strengths of the parties. Let's start with what each party's response to the settlement proposal tells us about their camp's mindset.

Stated crudely, there are three main components in each party's evaluation of the settlement proposal: what the party would get in the settlement (X), what the party would get in a win (Y), and the party's chances of losing (Z). In a vacuum, you compare X to [Y discounted by Z] and go from there. Of course, life (and law) doesn't happen in a vacuum, and considerations like predictability, risk tolerance, and plain old human emotion play in.

Frank and Jamie's decisions to, respectively, accept and reject the settlement terms do not, on their own, tell us a great deal about the specific proposal on the table, or how each party views its position moving forward. For instance, Jamie's rejection of the settlement doesn't necessarily means she thinks she will win--just that the settlement wasn't generous enough to persuade her to give up the chance to win. But, using other information, we can speculate a bit as to what yesterday's events mean.

In settlement discussions prior to the trial, Frank steadfastly refused to consider any agreement which affected the family's ownership of the Dodgers in any way. Sources very close to the situation told me in September that this position extended to terms that stopped short of actually selling the team; Frank was unwilling to think about selling part of the team to pay Jamie off, and was also unwilling to encumber future revenue streams in such a way as to affect the team's operating budget.

If we assume that Frank, after the trial, at least stood firm on the issue of keeping the team in the family, we can logically speculate that the settlement proposal on the table that Frank accepted and Jamie rejected would have accomplished that goal. We can also assume that the settlement proposal reflected Judge Lichtman's informed opinion on each party's chances should the case reach a decision, although we can't be sure the parties themselves agreed with Judge Lichtman's assessment.

In a very uncharacteristic move, Frank's camp broke silence on the issue, beating Jamie's to the media. Over the course of this saga, it's been rare for Frank's side to proactively shape public opinion; from day one, Jamie's fought much more loudly than Frank. Here, it's clear that Frank wants us all to know that he agreed to end this battle, and Jamie stood in the way. But why?

The Times' Bill Shaikin and Carla Hall spoke to a couple experts to find out. One, family law attorney Lynn Soodik, speculated that Frank either saw the offer as fair, or knew that Jamie was going to reject it. Under the second theory, Frank wanted to realize the public relations gain from painting Jamie as the reason this is still an open issue. His side's choice to make all this public now, though, suggests there's more going on than simply trying to grab the moral high ground.

By going public with Jamie's rejection of the expert mediator's settlement proposal prior to a decision, Frank can accomplish two things. First, there is the open and obvious public pressure on Jamie's side to come to an agreement. Maybe the thinking is that this will force her hand. Maybe the thinking is that, for as concerned as Jamie's side has been with its public perception, coming off as unreasonable and uncompromising is not an acceptable outcome.

Or maybe yesterday's statement wasn't about yesterday. Or last week. In addition to applying pressure to Jamie's position, I think it's at least possible that Marc Seltzer's comments were meant to lay the foundation for Frank's least desirable outcome: an eventual sale of the Dodgers, compelled by a decision in Jamie's favor. Frank felt accepting the settlement "was the responsible thing to do for his family, the Dodgers organization and the entire community." Conversely, then, rejecting the settlement, as Jamie did, would have been the irresponsible thing to do. Put differently, it might have jeopardized what Frank believes should be the couple's most important goal.

Frank McCourt's primary position has been that the Dodgers must stay in the family. Naturally, he is confident that McCourt ownership is also good for the Dodgers and, by extension, the community. While he might have come to Los Angeles an outsider, I strongly believe that Frank has come to regard the Dodgers as much more important than 24 acres of Boston seafront property ever were. And I wonder if yesterday's release is a sign that he is concerned about his chances of keeping the Dodgers in the family.

I still think Jamie got what she wanted in the MPA. I can't look at her initial public statements in the divorce and conclude that she had any idea that the documents had been switched--that she had any idea there existed an Exhibit A making the Dodgers anything but Frank's separate property. And I can't help but think that, despite her apparent unfamiliarity with marital property laws in Massachusetts and California, and despite the ugly chain of events leading up to the MPA's execution and subsequent modification, Jamie didn't have enough in the way of background and intelligence to at least question the document when she reviewed its terms. 

For all that, though, Jamie's case is strong. Strong enough, perhaps, that Frank's inability to prove his facts is more important than Frank's facts as they actually occurred. Strong enough that most observers considered Jamie to be in the lead after the trial. Strong enough that Jamie turned down what was surely a well-reasoned, thorough settlement proposal crafted by a well-respected mediator. Strong enough, basically, that the McCourt with the most to lose is ready to roll the dice.

Tuesday, November 30, 2010

Frank accepts settlement proposal, but no agreement reached.

Looks like we might just see this one through to a decision after all. Breaking weeks of silence, Marc Seltzer, an attorney for Frank McCourt released the following statement:

Frank fully supported the mediation process in the hopes that it would result in an agreement that would bring long-awaited closure to this matter. 
It is clear that Judge Lichtman, who acted as the settlement judge in this matter, went to great lengths to bring the parties together.  He presented a thoughtful, detailed proposal that clearly took significant time, energy and expertise to prepare. 
After considerable deliberation, Frank accepted Judge Lichtman's proposal.  He felt it was the responsible thing to do for his family, the Dodgers organization and the entire community. Unfortunately, Judge Lichtman has declared the parties to be at impasse.  We can only conclude that Jamie rejected Judge Lichtman’s settlement proposal and is allowing this matter to drag on further.
A few quick thoughts--to start, we have no hard facts about what the package looked like. If Frank was prepared to accept Judge Lichtman's proposal, it's likely the proposal didn't involve selling the team. In settlement discussions prior to the trial, Frank had balked at any scenarios which would in some way diminish his ownership of the team.

Next, I don't doubt for a moment that Judge Lichtman's proposal was indeed thoughtful and detailed. As was reported last week, the law firm involved in the document confusion, Bingham McCutchen, was a party to settlement discussions. Presumably concerned about potential liability stemming from the saga, Bingham might have been willing to pay both Frank and Jamie to agree not to pursue the firm later. Add in that piece to the several other moving parts--the TV rights, debt obligations, tax considerations--and there is no doubt that any potential settlement agreement was going to be pretty darned complex.

Finally (for now), if Frank's side's characterization of Judge Lichtman's view is correct--that the parties are, indeed, at an impasse--that tells me the disagreement concerns fundamental issues, not structuring. Remember, though, that this thing can still be settled prior to a decision.

Back later with more.

Tuesday, November 23, 2010

Rumblings from the volcano?

According to this TMZ report, the McCourts' divorce has officially been docketed--we can drop the soon-to-be from ex-wife and -husband. While settlement talks remain confidential prior to Judge Gordon's ruling on the property issues in play, the TMZ report suggests the parties have been given an ultimatum: figure it out by the end of the month, or the decision will be made for you.

It looks like we're getting closer to finding out whether cooler heads truly can prevail before a decision renders them powerless to determine their own fate. At issue, of course, is just how to deal with ownership of the Dodgers in such a way as to allow the team to prosper and Jamie to get the money coming to her. Disposing the team is an unappealing option, for several reasons.

First, there's little indication either McCourt doesn't want the team to be in the family. It's a wealth-generating machine, and it has funded their lifestyle for over a half-decade. Further, selling the team would be to rob the asset of much of its value to the McCourts, as a variety of tax consequences would likely eat into the significant increase in value the team has seen since the McCourt purchase. Finally, a sale now would come at a low point, prior to the so-close-you-can-taste-it TV rights coming back to ownership.

Strictly from an operational perspective, the Dodgers have been pleasantly generous since the summer signing of first round pick Zach Lee. Resolving the core issue of the divorce--just who is going to own the Dodgers long-term--would provide much-needed stability as the major league roster appears destined for a massive overhaul over the next couple seasons.

Wednesday, November 3, 2010

After a decision.

Los Angeles Superior Court Judge Scott Gordon has had all the issues in the post-nup trial on the table for over a month now, and the parties filed their proposed findings several weeks back. While Gordon has until just about the new year to announce a decision, no one really expects him to stretch this out toward the deadline. Indeed, many--myself included--look for a ruling on the validity of the post-nup before Thanksgiving.

A decision could well serve as a catalyst for serious settlement discussions. The validity of the MPA is the greatest variable in the divorce, and taking it out of play gives each party a more certain position from which to negotiate. Whichever side wins on the MPA will try to play that victory as a trump card in discussions. The losing side will, in turn, seek to use the threat of additional litigation as leverage.

And it's the specter of continuing litigation which is both most vexing to fans and the greatest reason the parties will have to settle the thing. Both parties have likely already considered their strategy on appeal, and each can make noise about the next step in the litigation over the Dodgers. For Frank, it will be the way he purchased the Dodgers--with proceeds from an asset acquired before marriage. It's not great; if it was, it would have been his first bullet. But it's something, and it would cost time and money.

Jamie's next step would be the issue of support; even if the Dodgers are nominally Frank's, isn't he still obligated to pay her enough to support her marital lifestyle? And how would he come up with that cash? And Lord help us all if, as Jamie's lawyers believe might happen, we end up in another trial to characterize each and every of the couple's assets as separate or community property. That would take, well, if not forever, damn close.

The takeaway is that Gordon's ruling only ends this mess if the parties want it to. And they haven't shown any particular affinity for working together to this point. Maybe resolving the MPA issue changes that. But maybe their expected outcomes would still be so far apart that Gordon's decision still isn't enough motivation to put this behind us.

In the past, Frank had been unwilling to compromise in any way that would affect his control and the operation of the Dodgers. This would include selling off a chunk of the team or making long-term financial decisions based, in large part, on his obligations to Jamie. Losing on the MPA might change his mind on that, but still: any settlement that results in the sale of the Dodgers is no worse than a loss in all the litigation anyway, so why settle?

For this to end anytime soon, both Frank and Jamie McCourt will have to want it to end. They didn't last year, at least not enough, when they could have prevented much of the damage done by the divorce. They didn't again, at least not enough, when lawyers from each side met to discuss settlement multiple times in the months leading up to trial. And they didn't again, at least not enough, on the eve of trial, before it became the spectacle it did. From a fan's perspective, I hope solving the MPA is enough. I hope they settle, and quickly. I just don't see any reason, based on the McCourts' inability to work together over the last two years, to expect a clean resolution.

Wednesday, October 27, 2010

Anniversary of a divorce.

On October 27, 2009, Jamie McCourt filed her petition for divorce. The marriage had become inexorably unglued at some point in the relatively-recent past; the McCourts separated over the prior summer. Still, the divorce itself wasn't to become public as quickly as it did, the story goes, but that all changed when Frank severed all ties between the Los Angeles Dodgers and his eventual ex-wife in October.

The first wave of publicity coming out of the divorce wasn't exactly good. Jamie's petition lovingly documents the degree to which the Dodgers financed the couple's extravagant lifestyle. You know the line items at this point; everything from travel by private jet to flowers for the office. Really, you could probably cut and paste the list of benefits, perquisites, and emoluments from Jamie's petition and compare it pretty evenly to the way many, many wealthy Americans use their businesses. Whether you're okay with that is a matter of personal taste.

But there was undeniably something different about this. Maybe it was the nebulous concept of the Dodgers as a civic asset, a notion that has, truth be told, been discussed much more since Jamie's filing than I can remember beforehand. Or maybe it was the perceived over-the-topness of the McCourts' lifestyle; does anyone really need two pairs of neighboring multi-million dollar homes? Or maybe it was the sheer dollar amounts involved; Jamie put her monthly living expenses at over $488,000--before valuing the Dodgers-paid perks.

Or perhaps it was the economy. October 2009 was still a pretty dark time for many Americans. For that matter, so is October 2010. Seeing the McCourts' marriage laid cold and bare on the autopsy table struck a very particular nerve; we (collectively) are losing our savings and, in too many cases, our jobs, and these two are getting set to fight over who gets how much of a billion dollars? Jamie's filing might be termed a Petition, but it should be noted that she wasn't overtly asking for sympathy. A good thing, because it wasn't coming.

Still, it's sports, which means it's about winning and losing. The Dodgers won 95 games in 2009. That's very good. Six days before Jamie filed for divorce, though, the Dodgers lost the fifth and final game of the NLCS, looking--again--quite helpless and overmatched against the Phillies. Close observers had grown wary of the win-now mentality the Dodgers operated under for years. There was a sense that the window for winning was, if not yet closing, certainly not as wide as it was only a year previous. Less than a week after a disappointing end to a fabulous season, the near-term future of the club was hidden somewhere amid the first couple hundred pages of the divorce.

Catastrophes are unique events, both utterly predictable and entirely surprising. The McCourts had a tumultuous marriage. We knew that. The McCourts didn't exactly live a cash-rich lifestyle. We knew that. The McCourts had no history with the Dodgers--heck, no history with Los Angeles--prior to their purchase of the club. We knew that. Draw whichever analogy you like--the sinking of the Titanic, Hurricane Katrina, the collapse of the global financial system...almost always, the signs are there. That's how catastrophe is utterly predictable.

But for things to really get bad, you need some bizarre, fluky confluence of factors. The warning signs need to converge in meaningful, material ways. An iceberg and a flawed design and human ignorance and a terrible crisis response. A major city built below sea level and bureaucratic incompetence and an aberrant storm and grossly ineffective disaster planning, management, and response. Unheeded greed on Wall Street and incentives for regular folks to make irresponsible decisions and instruments few really understood and an amazing, confounding ignorance to the risks involved with our financial system. You get the point.

Now, the McCourt divorce is not fairly comparable to the Titanic, Katrina, and the recession as a matter of gravity. Of course it's not; we're talking about rich people fighting over just how rich they'll each be when this is over. But, as sports goes, it was a major catastrophe, and it bears all the hallmarks. Every single warning sign manifested itself in some way and the economy was miserable and the Dodgers stopped winning and no one with the power to stop this calamity really paused to consider what would happen if everything fell apart as it did. If you would have told anyone about just how the stars would align with the McCourts and the Dodgers, that person would have known precisely what was coming.

But no one ever really expects everything to go wrong.

Jamie McCourt filed for divorce a year ago today, and we cannot say it's been a banner year for the organization in any way. Not on the field. Not in the newspapers. Not on the farm. The Dodgers will be back, of course. You just can't keep a club with its built-in advantages down forever. But we will spend the next months (but hopefully not years) determining whether the club moves forward under McCourt direction or otherwise. Still, if nothing else, the McCourt divorce stands out as another unfortunate example of what happens when everything that can go wrong...well...does.

Thursday, October 21, 2010

Getting past § 852(a).

As we've discussed in the past, one of the most important issues under Judge Gordon's consideration is whether extrinsic evidence of the McCourts' intent respecting the MPA is admissible. If not, Judge Gordon is left only to analyze the MPA itself and very limited evidence of its execution. This would certainly seem to favor Jamie; there are, after all, completely contradictory Exhibits to the MPA. But, just as excluding extrinsic evidence wouldn't make for an automatic Jamie win, neither would allowing it seal the deal for Frank.

If analyzed under California Family Code § 721(a) and 1500, rather than Jamie's preferred § 852(a), Frank wants the court to rely on several pieces of evidence showing Jamie always wanted the Massachusetts MPA, and that she derived significant benefit from it. Frank points to testimony from a number of witnesses claiming that Jamie never wanted the benefits and responsibilities of ownership, that she always wanted the assets divided, and that she wasn't nearly as harmed by the transaction as she claims. Yes, Frank admits, the raw dollar values of the couple's property under the MPA are not now, and were never, equal. But she was shielded from the risk of the entirely debt-driven transaction, and that matters.

Jamie's counsel responds to this line of argument by asserting several basic defenses to contract formation. Her side claims there was no mutual assent as to the material terms; how could they have agreed on something, they say, when there exist two signed and notarized--and wholly opposite--Exhibits? How could this agreement be upheld in the context of divorce, they say, when divorce wasn't contemplated during the MPA's formation? 

Frank's side counters that Larry Silverstein did discuss the MPA in the context of divorce during a meeting about a week before the execution of the document. It is also mentioned on the cover letter to the MPA. Except for the whole messing-with-the-documents part, Frank's argument today is largely the same as it was from the very beginning: Jamie wanted the protections of the deal. As fate had it, though, the Dodgers soared in value while the residential real estate--her nest egg--dropped like a lead balloon. Frank's side feels it disingenuous that Jamie, a lawyer, would seek to escape a document she drove. 

It sure feels like we've beaten most of the issues to death at this point. One we haven't discussed as much--fraud--is on deck.

Tuesday, October 19, 2010

It's all on the table.

Yesterday, attorneys for Jamie and Frank McCourt submitted to Judge Gordon their proposed statements of decision. While the documents are not meant to be argumentative--Lord knows we've had plenty of that--the way each side suggests Judge Gordon should rule is, of course, a bit biased. I'll be back later today with further detail, but I wanted to give you a rundown of the big issues this morning.

Certainly, the threshold question is whether the MPA should be interpreted under the guidance of California Family Code § 852(a). You'll recall that § 852(a), which imposes special rules for evaluating marital agreements, specifically forbids the introduction of extrinsic evidence as to the parties' intent in executing the agreement. In English: this particular law means Frank can't rely on his several witnesses testifying as to Jamie's lack of interest in the benefits and restrictions of true ownership of the Dodgers.

And it's that evidence, of course, that most powerfully supports Frank's story. If § 852(a) controls, Jamie's argument about the conflicting Exhibit A's gets a whole lot nicer, as Judge Gordon would be barred from considering much of the evidence suggesting that Jamie always wanted the Massachusetts version and never even knew of the California version. Frank wouldn't be sunk, necessarily, but it would certainly be an upset victory if he won under § 852(a).

So what goes into Judge Gordon's decision of which law to apply? Mostly, it has to do with whether the MPA is a transmutation agreement, which must be interpreted by the strict § 852(a) standards. Jamie's side says that the MPA is (of course!) a transmutation agreement: "As [Frank McCourt] seeks to enforce it, the MPA is an attempt to change the character of certain assets." There's a whole lot more that goes into her argument here; whether there was an express declaration of the property being transmuted, whether the type of transmutation being effected is even contemplated by the law, and whether the non-transmutative language of the MPA can be enforced if the rest is struck, for starters. But her point is that the MPA is a transmutation of property under § 852(a) and must, therefore, be subject to its rules, including the barring of extrinsic evidence to prove intent.

Frank's lawyers argue that the MPA is (of course!) not a transmutation covered by § 852(a). Frank wants the MPA governed by § 721(a) and § 1500, both of which would allow the introduction of Frank's precious extrinsic evidence. A transmutation, Frank's side argues, only occurs in three ways: separate to community, community to separate, and one spouse's separate to other spouse's separate. Since the MPA, they say, accomplishes none of those three things, it doesn't fall under § 852(a). This argument goes that the MPA served only to ensure that, upon the move to California, the property would remain separate--the Dodgers Frank's, and the homes Jamie's--pursuant to how they had titled property going back to the Massachusetts days.

Like Jamie's, Frank's proposed statement covers much more territory, and we'll get to both. For now, the takeaway is this: the threshold question is whether Judge Gordon will consider much beyond the words on the agreements themselves. Because of the conflicting Exhibit A's, a determination that § 852(a) controls the analysis would be a big step in the winning direction for Jamie. 

Thursday, October 14, 2010

Want to own the Dodgers?

Several names have been mentioned as potential suitors for the Dodgers, in the event Frank McCourt decides to sell. Mind you, he's very adamant the club is not, and will not be, for sale. Still, you probably know most of the names. There's Dennis Gilbert and Eli Broad, two old favorites. Mark Cuban is always popular. Steve Soboroff and Tim Leiweke are not talked about as much, but I've heard them as potential dark-horses.

But how about you? The Daily News' Tom Hoffarth explains:
The recent very public divorce proceedings embarrassed Angelenos to no end. Despite doing a lot of stadium renovation and laying out plans for more mini-mall-like expansion, the McCourts' ultimate treatment of the team, the city and its fans appears to be a pretty clear-cut case of L.A. identity theft. And we want it back.


Janice Hahn, the L.A. city councilwoman whose family investment in the Dodgers goes back to rolling out the blue carpet for the team when it arrived in 1958, has already stepped up.

Hahn issued a press release Oct. 1, calling on the U.S. Congress to reconsider the "Give Fans A Chance Act," something that Earl Blumenauer, D-Ore., has proposed at least twice in the past decade, but could not get passed.


She also emphasizes that this isn't proposing that the cash-strapped city buy the team, or that tax money be used.
Fun stuff, right? The premise is that you and I will lay out some of our money to buy a piece of the team. I see two threshold problems: First, while I'm certainly against using public money to make this happen, we must recognize that the same financial issues the state faces are affecting many of us, too. Simply put, the same way there are fewer billionaires ready to buy the Dodgers outright than there were a few years ago, there are also fewer civilians, as it were, prepared to lay out thousands for an interesting piece of paper.

The second problem, of course, is a technical one. It would be awfully tough to pull this off. Hoffarth gets us started:

There's nothing we can find in the Major League Baseball's Declaration of Ownership Independence that forbids public/fan operation of a team. Several sources have confirmed that. So, we're going with that premise.

Yet, as a privately held company, in cahoots with a legal oligopoly of antitrust-protected businessmen and women all watching each other's financial interests, the Dodgers simply can't be bought and sold like a corner liquor store. Any change in ownership needs approval of the eight-person MLB Ownership Committee.
That's one big problem. While there might be nothing that explicitly forbids public ownership of a Major League franchise, that approval process would seem to serve as a de facto prohibition, should MLB choose to use it as such. Baseball often has enough trouble reining in small ownership groups. Imagine how it feels about a group of thousands. Back to you, Tom:

Several MLB sources that wished to remain anonymous tell us the chances of a nonprofit organization owning any big-league team these days are pretty far-fetched. There are tax amortization rules in place, for example, that benefit individual owners who face financial losses. There's revenue sharing. There are all kinds of hurdles in place that probably wouldn't work with a nonprofit structure.
One of the several tracks on repeat during the McCourt trial was Jamie McCourt's supposed unwillingness to submit to the strictures of ownership: the personal guarantees, indemnifications, invasive background investigation, et cetera. The point is that Baseball, for reasons several and well-enumerated by Hoffarth and friend-of-the-site Maury Brown in the article, really likes keeping the club small and private. Full disclosure is not Baseball's strong suit.

I spoke to Hahn about this issue a few weeks ago, and mentioned the concept of a control person. She acknowledged that, in any effort to bring the Dodgers public, ultimate control (and responsibility) would have to lie not with the fans, but with some entity that would provide those guarantees, indemnifications, and the rest. That's among the numerous hurdles to implementation of public ownership of the Dodgers--very much a civic asset.

In the end, I agree with Brown and other observers who say that it won't--and probably can't--happen. The takeaway, in my opinion, is that we really do view the Dodgers as something much more than a business, and we would like whoever or whatever controls the Dodgers to feel the same. Nothing would be a purer solution than for the fans themselves to own the team, but that's unlikely for a host of reasons. Instead, we'll hope for the next best option: that whoever owns the Dodgers, McCourt or otherwise, reestablish a connection with the city that has been lost over the last decade.

Thursday, October 7, 2010

Calling an audible; more legalese about the conflicting Exhibits.

I'm working on a piece concerning how the divorce will affect the Dodgers during this offseason and beyond, but it's not quite ready to go. In the mean time, let's dig a little deeper into Jamie's arguments against the post-nup. Last time, you'll recall, we looked at the alleged lack of express disclosures in the MPA as to the intent of the parties to transmute property. I think a ruling in Jamie's favor based on that statutory requirement would be legally defensible but generally flat.

Jamie's attack on the MPA begins, and has the greatest likelihood of success, under the additional requirements of California Family Code § 852(a), which contemplates marital property agreements. The § 852(a) rules are stricter than basic California common law as it relates to evidence of the parties' intent found outside the contract itself. This isn't entirely unusual; the general rules apply to situations without specific statutory treatment. Where a contract is governed by stricter rules specially enacted for that type of contract, the stricter provisions control.

Still, in addition to the arguments Jamie's lawyers make under § 852(a), there might yet be common law reasons this contract would be unenforceable due to the presence of the materially conflicting Exhibit A's. Jamie cites three cases with facts she says are similar to the facts in play here: "where parties executed different and inconsistent 'originals' of what was purported to be the same instrument." Her lawyers go on to note that none of these cases was decided in favor of the party asserting to enforce the contract.

Here are the basic facts of the three cited cases. Keep in mind that each was resolved in a way favoring Jamie's argument here.

  • Thayer v. Harbican, 70 Wash. 278 (1912).
    • Like McCourt v. McCourt, the parties in this case signed multiple copies of a contract. In Thayer, the difference between the two was that one contained a handwritten modification to a material term the other did not. Unlike our case, though, "neither party testified to what was said in arriving at an agreement, so that we (the Court) have nothing further than the writings themselves to show what was the real intention or agreement of the parties." Recall that one of Jamie's main arguments is that, even though we do have more information about the parties' intent, it is not admissible under § 852(a).
  • Vickery v. Ritchie, 202 Mass. 247 (1909).
    • This dispute was between a contractor and a landowner. Each party had signed a contract for the construction of a building, but the cost of erecting the building was different on the copies signed by the parties. The culprit was an architect who fraudulently changed out the price sheet so he could get paid more. The parties didn't discover the problem until the building was near completion, and they had both relied in good faith on the architect's statements. This would be a bit more appropriate to the McCourt dispute if Silverstein somehow figured to benefit by enforcement of a fraudulent contract.
  • Andrade v. Hanley, 289 Mass. 335 (1935).
    • In Andrade, contracts signed for the sale of real estate differed in the duties of the seller. "In the absence, as here," the Court wrote, "of explanation by extrinsic evidence of the difference between them, the plaintiff's proof of a contract binding on the defendants fails." This decision, which cites Vickery, was more similar to Thayer: without extrinsic evidence of the parties' intent or explaining the mix-up in documents, the court had no choice but to disregard the contract. As with the application of Thayer to our case, the issue is § 852(a)'s exclusion of evidence outside the contract itself as to the parties' intention.
None of these cases presents, in my mind, a bulletproof common law argument for why Jamie should win. If the plan is to decide McCourt under common law, evidence of the parties' intent would likely be admissible. The cases, though--particularly Thayer and Andrade--are quite useful to Jamie in one context: if extrinsic evidence is disallowed under § 852(a), Jamie's lawyers urge Judge Gordon to use nothing beyond the MPA's themselves to decide the issue.

If Jamie wins this thing, it will be because she successfully convinces the court to take into evidence very little but the language of the signed, notarized MPA's themselves. Further, Judge Gordon would also need to get past the language in the body of the MPA denoting the importance of title; what's titled in Frank's name is Frank's, what's titled in Jamie's, Jamie's. Her lawyers contend that that language alone can't be the basis for a Frank win, not with the conflicting Exhibit A's out there. His lawyers say it is impossible to look at the creation, execution, and ratification of the MPA's and believe the parties were ever truly in conflict.

There are probably a dozen facets to the dispute just like this one, and I'll do my best to get to them in the coming weeks.

Monday, October 4, 2010

The meaning of the conflicting Exhibit A's.

Twice in the last week or so, I tried to articulate where the difference between what really happened and what can be proved manifests itself in the issue currently under Judge Gordon's advisement. More than anything else, the existence of two different signed, notarized versions of the MPA has some fans and observers calling this a relatively simple case. A commenter to the last post notes:
Bottom line -- Whatever the "truth" as Frank or Josh know it, if there has been no apparent meeting of the minds and the writing signed by the parties does not reflect the clear understanding of the parties, show me a judge who is going to uphold the questioned writing.
I really understand the logic behind this argument. If you have people signing documents that provide for completely opposite treatment of Asset X, it's awfully hard to say the parties agreed on what to do with Asset X. In this context, the versions do something completely different with the most important asset in the marriage: the Los Angeles Dodgers.

For the sake of this discussion, I'm only talking about the fact of the existence of materially conflicting versions of the MPA.

Summed up, Jamie's argument goes like this: the different Exhibit A's present an "irresolvable conflict" between the Massachusetts and California versions of the MPA. Because of this discrepancy, it cannot be legally determined which property was meant to be made Frank's own, and the MPA is therefore a legally ineffective document. While outside evidence of the parties' intent is often admissible, California Family Code § 852(a) imposes special rules for interpreting transmutation agreements.*

*Frank contends that the MPA should not be regarded as a "transmutation"--and thus not subject to the special rules of § 852(a)--but that's a conversation for a different day. We'll assume, for now, the MPA is indeed a transmutation, and therefore needs to conform to the strict rules of § 852(a).

First and foremost, California law requires that, for a transmutation to be effective, it must contain an "express declaration" that the spouse giving away rights to property intended to do so. Jamie's lawyers say the conflicting Exhibit A's are conclusive evidence that the MPA fails to offer such a declaration. Where § 852(a) is really tough on Frank is that it specifically forbids the introduction of extrinsic evidence to prove an express declaration or an intent to separate property. So all the witnesses who said Jamie always wanted the MPA this way? Who cares. Jamie's attorneys say that it is simply impossible to tell from the signed agreements what the parties meant to do, and signed agreements govern under California law.

Their argument is inherently logical: if the law requires a clear and unambiguous expression of intent to transfer an interest in property, and the documents have completely opposite expressions of what the parties intend, and outside evidence of intent isn't allowed, what is left to argue about? California law governing interpretation of transmutation agreements requires clarity in writing and forbids oral evidence for policy reasons, and application of that law sure seems favorable to Jamie.

And maybe that's all Judge Gordon needs; maybe it even forces his hand. But I think that a decision in Jamie's favor based on § 852(a)'s requirement of an express declaration of intent would be, while defensible, a bit hollow. The California legislature expressed, through § 852(a), that the old system of not requiring an express declaration "encourage[d] a spouse, after the marriage ha[d] ended, to transform a passing comment into an ‘agreement’ or even to commit perjury by manufacturing an oral or implied transmutation." I don't believe that the legislative intent driving the creation of what became § 852(a) was meant to cover this sort of fact pattern.

The parties did expressly declare their intent in the only version of the MPA they ever believed to be signing, and did so in the only version they ever knew about until this year.  I don't think Jamie winning would be any great injustice--there are several problems with the MPA I would accept as fair and fatal. The mere existence of two different Exhibit A's is not one of them.

Friday, October 1, 2010

Where we're at on October 1.

By October 15, lawyers representing Frank and Jamie McCourt will submit what amount to proposed orders to Judge Gordon. These documents, while not supposed to be additional arguments, will lay out the facts and law each side will use to support its proposal. Judge Gordon will review the submissions and use them as the basis for a written ruling he is expected to issue before the holiday season.

Jamie McCourt's lawyers will lay out, in no uncertain terms, the nearly-unbelievable sequence of events surrounding the contested Exhibit A to the MPA. How, she will argue, can the court justify upholding a document with two materially different signed, notarized copies? How can the court justify upholding a document Jamie signed with counsel that was arguably inadequate--at best? How can the court justify upholding a document in a context the couple hardly considered when it was executed--if they considered it at all?

Many of Jamie's strongest arguments rely on events that occurred after all six copies of the agreement had been signed. The "switcheroo," as her attorneys describe it, should not only be regarded as fraudulent at the time--she was neither asked for permission nor informed of the switch--but it should also speak to Jamie's lack of independent, effective representation. How, she argues, can the court justify upholding an agreement drafted by a lawyer so seemingly beholden to Frank?

The way I see it, Jamie's case relies principally on raising doubts as to the basic fairness of the creation and execution of the MPA. By displaying the dizzyingly confused history of the document, she contends that it must be disregarded on its face. I think her lawyers have an easier job here than Frank's; her argument is dramatic, sympathetic, and media-friendly.

Frank's case is simpler, but perhaps more difficult to win. As I laid out last weekend, I think his version of the facts is much closer to the truth. I think Jamie McCourt should really not be allowed to walk away from an agreement she asked for, one she appears to have the training, background, and intelligence to fully understand. I think that, whether she contemplated divorce or not, she surely benefited from the protections of the agreement, and is now seeking to avoid its consequences. I think Frank's basically right, but he's going to have a hell of a time giving Judge Gordon enough reasons to agree.

Though this might seem odd, judges often love to be told what they can and cannot do. Many judges specifically ask the lawyers in front of them to explain why the judge is empowered to rule in their favor. Lawyers are tasked with offering statutory, case law, and public policy reasons the court can rely on. Judge Gordon said during the trial that he sees the court's job in this litigation to decide how the contested Exhibit A's fit in with the whole of the agreement, that it will be the court's challenge to do so. It is here that, no matter the accuracy of the totality of the facts, Frank will run into his most difficult hurdles.

Has Frank given Judge Gordon enough to disregard the chicanery that went into the creation, execution, modification, and handling of the MPA? Frank's lawyers say yes. Look at what Jamie wanted, they say. Don't worry a ton about what happened after April 14, 2004; Jamie wanted what she signed on March 31, and she shouldn't be allowed to get out of it just because it didn't turn out as she expected. "If Jamie McCourt, Esq., is not bound by her MPA, no one ever can be," her lawyers argue.

And I think they're right. But I don't know if they have enough to allow Judge Gordon to publicly agree.

Tuesday, September 28, 2010

Day twelve preview: closing arguments.

Long ago--about ten and a half months ago, to be exact--we were just a couple weeks into a conflict that is nearly certain to last over a calendar year. Each McCourt had filed their opening salvo, and, in between jokes about Jamie's pool demands, we were just beginning to get a grasp on the issues involved in the divorce. On November 10, I wrote:
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 [as a lawyer], 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.
Well, here we are. And, what do you know: Jamie has found and relied upon evidence that something terrible took place: a switcheroo. Yes, the substitution of the "corrected" Exhibit A is just the sort of event we long ago knew might lead to a Jamie victory. But, on the eve of closing arguments, the switcheroo is hardly Jamie's only theory.

While sexy and media-friendly, Jamie's lawyers just haven't been able to get to the bottom of the switcheroo. Larry Silverstein contends it was a minor mistake--to him, anyway--that he cured without thinking twice about it. Yes, it would have been "best practice" to inform the couple of the "correction," but he was simply acting in accordance with the couple's wishes. And Frank's lawyers have certainly done a good job laying out Jamie's role in the separation of the couple's assets. I still strongly believe that "the only textual version of the MPA Jamie understood to exist in 2004 was the only one she even suspected to exist when she filed for divorce last Fall."

But the facts might not be enough to carry the day for Frank. For as difficult a time Jamie has has fighting the contention that she was wary of the risk, Frank's had just as dreadful a time proving Jamie knew the implications of the MPA. If that was all Jamie had--that she never meant it to be this way--I'd give this one to Frank tonight. She's a lawyer. She doesn't get the protection of not knowing what simple documents mean. But that's not all she has.

She has a lawyer who put an Exhibit in an agreement the couple signed that is completely opposed to another Exhibit attached to another signed agreement. And that lawyer never sought permission to correct the error nor acknowledgement of the correction. She has lawyers who either acted directly against her best interests or, at least, without the diligence she had every right to expect. And there were other ways to protect the homes without having the drastic effect of divesting her of the Dodgers in the event of divorce. And she has very much won the point that divorce, while mentioned, was never considered during the construction of the MPA. It was a document for happier people in happier times.

As we go into closing arguments, the legal question is whether a valid, enforceable contract ever existed. Tomorrow, Frank's lawyers will say that Jamie got exactly what she wanted in the post-nup. And that she shouldn't be allowed to benefit from the protection she needed early in McCourt ownership and now, in retrospect, also share in the upside of what turned out to be a good investment. And Jamie's attorneys will say that her inadequate (at best) representation and the entire stain of the switcheroo raises serious doubt as to whether the parties ever agreed to the terms of the MPA Frank tries to enforce.

As Judge Gordon has 90 days from tomorrow to issue a decision, I am not going to guess as to the outcome prior to hearing the closing arguments, except to say: each party very much knows it might lose. And each party very much knows that the litigation in McCourt v. McCourt won't end here, unless the parties and their representatives come together to end it on their own terms. I still believe that a settlement is the only reasonable outcome, and that, eventually, we will see that the McCourts are reasonable people.

Day eleven wrap, part two.

The first of two former Bingham lawyers of the day, Aaftab Esmail, headed up the real estate due diligence connected to the McCourts' acquisition of the Dodgers. He also did some work for Jamie personally, mostly related to the two Charing Cross homes purchased in her name. On the stand, Esmail testified that the residential real estate was always intended to be Jamie's sole and separate property, and the businesses were held by Frank alone. Esmail also noted that Jamie was concerned about the Dodgers purchase, due to the club's recent history of losing money and the high degree of leverage required in the acquisition. Esmail also found Jamie to be "smart, sophisticated, and well-informed."

After the noon break, Reynolds Cafferata, also formerly of Bingham McCutchen, retook the stand. The bottom line Jamie's attorneys wanted to hammer home was that no one walked Jamie through the consequences of the MPA in a divorce. Her representatives also used Cafferata's return to the stand to demonstrate several flaws in the process of creating the MPA, including the lack of alternatives to the MPA presented to Jamie. As her argument goes, there were other ways to protect the home than simply to give her the real estate and Frank the team. Lawyers and law students would recognize Jamie's approach here as something similar to strict scrutiny: she says the MPA, as drafted, went beyond the scope of the problem being addressed and failed to take advantage of less drastic means.

The other two witnesses of the day offered information perhaps more interesting to Dodger fans. Peter Wilhelm, the club's CFO, took the stand in the morning. He described documents showing that the Dodgers lost more than $140 million from 2000 to 2002 under Fox ownership. He characterized the work required of the McCourts as "a Herculean effort to turn [the club] around." Among the risks of the acquisition, Wilhelm listed expenses that exceeded revenues, Fox's practice of raising ticket prices, and a bloated payroll. Wilhelm testified that Jamie felt Frank was being too aggressive in his bid for the Dodgers, and that she was unsure about the viability of the turnaround.

Jamie's lawyers, on cross-examination, elicited testimony that the Dodgers outperformed Wilhelm's projections. By this, they meant to show that Wilhelm's forecasts had been unduly gloomy. They also attempted to get Wilhelm stuck between points; if he thought the acquisition was inappropriately risky, the question went, why did he recommend it? Wilhelm countered with a question in return: "Appropriate for me? Frank? Jamie? The fans? Who?" He noted that, while he found the risk level tolerable, Jamie was against the deal as late as the waning weeks of 2003.

The final witness of the day (and, indeed, the trial) was a McCourt financial advisor named Jeff Ingram. He'd been with the family businesses since 1999, and described the McCourts as consistently "asset-rich, cash-poor." He characterized his job as mining that asset value to generate cash flow. It wasn't always easy; in 2001, he informed the McCourts that they had six to eight months before they ran out of cash. He also wrote, on an itemized list of McCourt to-do's, "Stock smelling salts in the office. I'm going to need them." As far back as 2001, the McCourts were spending $75,000 per month while bringing in just $68,000. "Don't rely on the company as a bottomless source of money," he wrote.

Just months before the McCourts finalized their bid for the Dodgers, Ingram titled an email to the couple "Here we go again," referring to their cash-flow issues. He recounted Jamie as saying at the time, "[Frank] could make a billion dollars or lose a billion dollars, as long as I have my nest egg, I don't care." Ingram recalled that Jamie was unwilling to expose her assets to the risks associated with Frank's business ventures.

The debate of the day was Jamie's comfort level with the riskiness of the Dodgers acquisition. Frank's lawyers used their witnesses to document both risk of the transaction itself and Jamie's consistent desire to be insulated from that risk. Jamie's attorneys fought to show that, first, the purchase wasn't as risky as it looked and, second, that Jamie was ok with the risk. To which Frank's lawyers would say: Of course she was! Her homes were protected. She, herself, risked nothing. Jamie would say that's misleading; the couple protected the homes so the couple could engage in risky ventures. She cared deeply that the businesses succeeded.

Day eleven wrap, part one.

It seems odd to say this, but: we're pretty much done. With this round of litigation anyway. On Monday, lawyers for Frank and Jamie McCourt buzzed through six witnesses. Consider that it took six days just to get through Frank McCourt and Larry Silverstein (combined). For those who have been in the courtroom for the majority of the trial, the day was, at least, a refreshing change of pace.

The first witnesses of the morning were called by Frank to support his claim that Jamie was nervous about the riskiness of the Dodgers acquisition, and that she drove the creation of the MPA. Robert Leib, a consultant to entities in sports business, was engaged by Frank McCourt in 2001. He helped with bids for the Red Sox, Angels, and Dodgers. He claimed to have discussed community property with Jamie on two occasions, and that Jamie explained that they held assets in a way that protected her nest egg but also allowed him to engage in risky ventures. The Dodgers, Leib explained, had been able to sell just 11 of 36 suites in 2003, and that was just one example of the risks associated with the purchase.

Next came Corey Busch, another consultant in the sports business arena. Busch testified that Jamie expressed concerns about protecting her own assets. She refused to sign any indemnity agreement or personal guarantee related to the couple's acquisition of the Dodgers. "She really wanted to be separate from the deal," Busch said. She expressed those feelings in very public settings, leading Busch to conclude "this really was an issue between Mr. and Mrs. McCourt," and he noted that "a number of us were really taken aback" by the public tension. She had an interest in a management role, according to Busch, but not in personal ownership.

Jamie's attorneys cross-examined Leib and Busch using similar approaches. They noted that Frank McCourt was paying each witness' travel costs incurred in testifying. Leib never took any notes of his conversations with Jamie concerning community property, and he didn't display anything approaching expert-level competence in the relevant legal concepts. Leib testified that Jamie never mentioned divorce, and that Jamie never said the Dodgers acquisition was too risky.

On cross, Jamie's attorneys noted that Corey Busch wrote Frank last November offering his support in any way he might be helpful. Jamie's attorneys clearly wanted to characterize this communication as an offer to testify to Frank's side, but this backfired a bit when Busch explained his reasons for the note: he had heard about Jamie's affair with Jeff Fuller and felt sympathy for his friend, Frank. Busch also said "there was clearly risk involved" with the transaction, though, when deposed, he characterized the acquisition as not "very risky."

The four remaining witnesses of the day were two former Bingham McCutchen attorneys, Aaftab Esmail and Reynolds Cafferata, and two people close to McCourt finances, Peter Wilhelm and Jeff Ingram. We'll get to them in a bit.

Monday, September 27, 2010

Day eleven preview.

Good morning. First, a couple housekeeping matters. If you're new to the site, or would like a refresher on the basic issues, you can check out this trial guide I put together a few weeks ago. The basic issues are unchanged, though some details have certainly emerged since then. Next, I want to point out the long-overdue Twitter gadget on the left sidebar. I was dismayed to learn many non-Twitter users were having a difficult time accessing an updated feed last week, and the gadget on the side should solve that problem. It shows, in chronological order, my last ten tweets; about the most I'd ever get out after any session in court.

Today, Frank sets out to legally establishing the veracity of the factual background detailed in the post below this one. It's one thing, of course, to know the facts, but another altogether to prove them. To this point in the trial, Jamie has done a good job casting doubt on Frank's side of things. Her attorneys strongly implied Reynolds Cafferata was in the Dodgers' pocket, and they managed to characterize Larry Silverstein as either a man hiding a secret or a lawyer who made some pretty shaky decisions.

The fact is that, had Silverstein sought the parties' acknowledgment of the Exhibit A switch in April 2004 when, as Frank contends, both he and Jamie were on the same page, we probably wouldn't be here today. Most of Jamie's initial arguments, including the possibility of undue influence, have fallen through. The existence of that other Exhibit A, though, and the circumstances surrounding the switch, have given her a fairly strong position to argue from. It's only fitting that her best legal theory here--the switcheroo--and Frank's best defense--the facts--play in perfectly with how they've handled the divorce publicly. Jamie has been vocal and visible, Frank reserved and reticent.

Los Angeles Dodgers CFO Peter Wilhelm will take the stand today, and he is expected to be the first in a series of several witnesses testifying as to Jamie's knowledge and understanding of the MPA at the time of its creation and execution. Blessedly, this week's witnesses are supposed to be on and off the stand much quicker. Poor Larry Silverstein, between depositions and trial testimony, was under oath for a calendar week explaining to David Boies his role in the matter. Ouch.

The parties left trial last Thursday publicly optimistic about the possibility of settling the issue via mediation, but talks stalled out after a ten hour session Friday. The Times' Bill Shaikin reports that the sides are about $300 million apart, and also dealing with issues related to the timing of payments. This is in line with past settlement discussions, in which Frank's starting point was always what Jamie would get from his version of the MPA. Further, while Frank is willing--and might want--to spread payments over time, he has refused in the past to structure a settlement in any way that would have ramifications on the club. This means that giving her a chunk of the team or a hook in future revenue streams have been largely off the table.

While settlement talks haven't gone particularly well--this past Friday or in two other attempts this year--I still believe a settlement is the only reasonable option here. Frank might have the facts as they actually happened in his favor, but he's got several difficult hurdles to go in proving them and avoiding other land mines, such as Jamie's lack of independent representation. The risk of losing is still very real for both of them. And, among the several elephants in the room are multiple other legal theories, avenues, and disputes that would follow resolution of the issue on the table now. Unless settled, this litigation won't end here, and the parties both risk spending so much money unwinding the marriage that there is little left when all is said and done.

Saturday, September 25, 2010

So just what really happened?

We all know pretty well why we're here. The basics aren't tough. Frank and Jamie McCourt are getting divorced, and there's a question as to whether Jamie is entitled to half the value of the Los Angeles Dodgers. There's a document--a relatively simple one, really--that says everything titled in Frank's name shall be his in the context of a division of assets. Divorce counts. Seems simple enough, right?

But there's also something tacked onto that document. A couple things, actually. One, Exhibit A to the agreement, specifies assets that belong to Frank. Now, the main document itself sort of says that Exhibit isn't important. That it's for "courtesy" only. So, since the Dodgers are unquestionably in Frank's name, what's so hard about this? Problem is, as you likely know, two different agreements were signed, the difference being the content of Exhibit A.

One version says the Dodgers are Frank's. He wins, keeps the team, game over. The other version specifically excludes the Dodgers from Frank's separate property*. She wins, the Dodgers are the couple's community property*, the club must be sold, game over.

*You understand intuitively what these concepts mean. You do. But you wouldn't if you were on the stand. 

That's pretty much why we're here. And, eventually, Judge Gordon will either agree with Frank and uphold the first version of Exhibit A, or he'll agree with Jamie and toss the thing entirely. The reasons and mechanics that go into that decision are fodder for a different discussion, one we'll have here before trial resumes Monday. That's the legal part. What I'm after here is answering the question titling this post: so just what really happened?

I'm pretty well convinced on this point. Frank and Jamie meant to separate their assets prior to moving to California. The quickest, simplest way to preserve the protections they'd long ago given their homes was to allocate them to Jamie and the team to Frank. To simply cordon off the homes and leave the Dodgers in the community pot would likely have been ineffective. So they meant to split things as Frank's Exhibit A does it.

Never in the course of the creation and execution of the document did Jamie McCourt express concern that the businesses were being legally allocated solely to Frank. Indeed, she wanted that. I strongly believe that the first three copies of the document the couple signed on March 31, 2004 were precisely what they wanted. At that time, anyway. They were walked through that copy--which contained Frank's Exhibit A--and signed it. That day, Jamie was shown three seemingly identical copies, which she signed believing they contained the same Exhibit A. She had no reason not to: that was what she wanted.

Over the course of the next several months and years, Jamie was provided the documents multiple times for various reasons. The couple also ratified it in writing upon the acquisition of additional homes. As far as I've seen, at no point prior to the onset of significant marital strife did Jamie ever cause a fuss about the words or effect of the MPA and its exhibits. She knew what it said, and--as someone who practiced family law for several years--what it did. Really.

Perhaps nothing is more telling about Jamie's understanding of the MPA than what she did not do at the outset of the divorce litigation. She did not say--because she did not know--that documents had been switched. She did not say--because she did not know--that the Exhibit A attached to the MPA was materially different from what she had meant to sign. But, if she believed that the only MPA she knew of was not confusing, not misleading, but flat-out contradictory to what she agreed to, wouldn't she have screamed that from Day One?

She didn't. In her filing for divorce, she claimed "it was never [her] understanding" that the MPA would divest her of any interest in the Dodgers in the event of divorce. She argued that she "had simply been told [she] needed to sign the document" upon the couple's move to California, and didn't consider its effect. I am not asserting that Jamie signed the MPA with divorce in mind. In fact, I'll bet she didn't. And I'm not asserting she doesn't have several viable arguments against the MPA, including, among other things, the lack of independent counsel and the incredible difficulty Frank is having credibly establishing his version of the timeline.

I am asserting, though, that if Jamie had any idea that the only Exhibit A she knew of at the moment of her filing was completely wrong, opposite to what she believed she signed, that she would have let us know right away. She didn't know that fact of the switch until much later. But she also didn't react in a way suggesting she even suspected the substance of the switch.

I want to be very clear here. I am not saying that, in the absence of a settlement, Frank will win. Heck, I'm not even saying he necessarily should. Jamie has several viable arguments against the enforcement of Frank's version of the MPA, not the least of which being the lack of independent representation and the seeming ineffectiveness of the counsel she had. Further, there are strong public policy reasons supporting an award to her of a substantial portion of the couple's assets, even if Frank's MPA is upheld. Finally, it cannot be ignored that Frank is having a devil of a time proving the facts that would lead to his victory.

This afternoon, in this post, I'm not saying Frank has the best legal position. If this was a jury trial, after what we saw this week, I'd put Jamie very far in the lead. For three of the signed copies, the Exhibit A was switched out after the fact, and Jamie was neither asked for permission in advance nor explicitly informed of the switch afterward. That's really bad, and I very much understand why many folks have called this for Jamie already.

And maybe they're right. This afternoon, though, in this post, I'm only saying I believe that the facts as they actually occurred--without regard for whether they can be legally established--are closer to Frank's telling than Jamie's. Eleven months after we started this litigation, I can't disregard that Jamie's initial response to Exhibit A just doesn't mesh with her contention that she agreed to something completely opposite.

Very bad things happened with respect to the creation and execution of the MPA. For a variety of reasons, both legal and in the interest of plain old fairness, Jamie has a strong case. Divorce, if it was considered at all in the context of the MPA, was not given much thought by either party. But if the question is, "So just what really happened," I strongly believe the answer is: the McCourts knowingly negotiated, approved of, and signed an agreement explicitly making the Dodgers Frank's, and the couple's residential real estate Jamie's.

Maybe they didn't know of alternatives. Maybe they didn't contemplate its effects. Maybe they were inadequately and ineffectively represented. Maybe the facts that can be proven aren't strong enough to carry the day. All of these things really do matter, and they are why this has lasted as long as it has. But, given the couple's history, the life cycle of the MPA, and how the parties always interpreted it, I can't conclude anything other than the conflicting version of Exhibit A was a complete accident, unknown and unrelied upon by Jamie until after the divorce was filed, when it became the strongest of her weapons against the document she reviewed and signed March 31.

Assuming the McCourts can't come to an agreement this weekend, the trial will resume Monday morning. And assuming the couple can't come to an agreement some time in the next three months, Judge Gordon will rule that Frank's version of the MPA holds, or that the entire thing is ineffective. When evaluating the case, Judge Gordon must and will consider much more than what he believes to be the true factual history of the MPA. For today, though, and in the narrowed scope of this discussion, I don't. I believe that the only textual version of the MPA Jamie understood to exist in 2004 was the only one she even suspected to exist when she filed for divorce last Fall.