Tuesday, September 28, 2010

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.


  1. I am not an attorney, although I have an appreciation and interest in the law. I am a woman, however, and I have to say that as a woman, I can totally believe that Jamie's attitude about putting the houses in her name probably fell along the lines of, "Well, even if we lose everything we'll still have somewhere to live." I don't believe she intended to give up any financial interest in the Dodgers if they were in the black in the event of divorce. I do believe she was trying to protect their housing if their creditors came after them. It will be very interesting to see what the final ruling is. Great work, Josh, reporting on this case. Good luck to you in your future endeavors.

  2. @ Anonymous -

    I appreciate your viewpoint, but disagree. I think it's pretty clear that Jamie was very reticent about purchasing the Dodgers. She wanted no exposure to the large amount of leverage involved in that purchase. Jamie is a lawyer who knew exactly what she was doing. I guess it comes down to the fact that Jamie signed the original MPA knowing precisely what it said.

  3. Apropos of the first comment, my parents arranged their assets in exactly the same way. The family home was put in my mother's name. That was to protect the home in case my father ever got sued for any of his business dealings.

  4. Am wondering whether the Bingham attorneys had a duty to counsel H&W in the "what if" context of a dissolution during the timeframe of Jamie's request to prepare the original MPA where there did not appear to be any purported signs of marital discord?

    Also, query whether H&W who are presumably savvy, sophisticated, knowledgeable in directing the preparation of the original MPA can affirm in writing the characterization of the property as they did, but then change the characterization in the event of divorce?

    For example, if under Frank's alleged sole ownership, the Dodgers went belly up, and Jaime petitioned for divorce, would her legal position be the same?

    Thank you for your thoughtful coverage.

  5. Excellent work, Josh. Thanks so much.

  6. I too get that about women wanting to protect the house(s) from the risks their husbands took. The same dynamic existed in my family as well as those of several people I know. That Jamie is now denying her discomfort with risk is really disingenuous and I would hope the judge picked up on that.

    That said, I don't see how the judge can uphold the MPA as is. Maybe he'll strike a middle course though I don't see what that would look like.

  7. I am not a lawyer, nor did I play one on t.v.. But I have written several large checks to law firms over the years, and in general I know how law actually works. We aren't talking justice here, we are talking law.

    So my question is this - the judge just rules one way or the other, right? He wins or she wins, correct? And either way, this thing drags out for another year with appeals. Do I have that right?

    These two have had chances to mediate and settle this thing amicably but have decided to slug it out, winner take all. Frank can't afford to lose, or divide equally, because he has no money of his own to pay the enormous debt load AND improve the Dodgers. As I see it, the only way he can buy her out is with some kind of "future" - or, more debt. And if Jamie loses, like the rest of us who own real estate, she will take the loss on the properties.

    My personal feelings aside, the real losers here are the Dodger fans. No matter how this plays out, without a new owner, how does this team compete in the near future?

  8. @multiple Anonymousim

    Only if Judge Gordon rules in W's favor do the Fans win because then the team would be sold. Otherwise, the Dodgers continue to suck.

    It makes perfect sense to me that H&W put the property in her name so they would have a place to live in the event LAD went BK. With that said, I believe W knew zackly wattup.

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