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.


  1. Josh,
    If the only version ever signed was the California version (the one favoring Jamie), and if a court concluded that Jamie and Frank instead intended (at the time the agreement was signed) that the Dodgers would be his separate property, not community property, would a court reform the agreement to reflect the intent? Or would a court say there really had to be a written agreement that on its face (without reforming it) reflected the intent?
    I am a California lawyer. I love your blog -- really great. Maybe some of your law school buddies could research the question I posted and give it to you for a post from you.
    Thanks, and congratulations on your industry and insight.

  2. After following all of this for some time, it sure seems obvious to me that these two people deliberately put this agreement together to protect their assets from themselves - most notably Frankie Dimes and his propensity for risk.

    If I were the judge, which I ain't, I would say it serves them both (and the public) right to divide their entire pile of assets right down the middle.

    Pay the woman Frank. You won't be the first and you sure won't be the last.

  3. I agree, Josh. And thought that makes the most (and maybe only) sense from the start. But wht has intrigued me the reports I've read of the trial are the events that occurred after the discrepancy was first discovered by and what seems to be the lag in Jamie being notified - and whether or not there was any discussion between him and Frank about how the mistake should be handled. I know there've been denials on that point but if I was a lawyer for Jamie I'd be wishing I could get hold of Silverstein's phone logs. It's like the old adage about Watergate - it's not the crime, it's the coverup. But in terms of original intent - I think what you say is very hard to argue with. Thing is - should that be all that matters? Or even what matters most?

  4. While I agree with most of what you contend regarding the couple's original intent to separate homes and businesses, sadly I disagree with your final summation of Silverstein's "accident". In my mind there was clearly chicanery going on. Jamie has used this as her legal linchpin, and good for her. Clearly her husband was not to be trusted, intent or no.

    I can see no other declaration than Gordon declaring the MPA invalid and splitting all assets definitively according to California law. As each day passes in the courtroom, it becomes clearer and clearer that this will be Gordon's decision.

    Josh, I would love a post defining exactly what the judge's criteria will be in deciding the outcome, a primer if you will. That would be enormously helpful. This thing is going all the way to the bitter end.

  5. I believe the best outcome would be a fifty-fifty split for the McCourts and the sale of the Dodgers to a SoCal group.

  6. What is strange, however, is that the California MPA actually benefited Jamie in this context due to Silverstein's mismanagement. If the Mass. MPA includes the dodgers in Franks separate property, which was what they intended, then the change to exlusive would give Jamie the community property equality she is seeking. While I do find it rather questionable that Jamie ever intended to consolidate at all, I say that everything is fair game at this point. All is fair in love and war, and by letting it get to this point, chess moves are valid, so is hitting below the belt. Will Gordon be moved by this strategy of Jamie's legal team? Will these technicalities be enough, along with lack of independent representation and time line distractions, to over-ride the original and, it does appear, consistent policy of the two of them to keep these assets separate? This is where I am fascinated by Judge Gordon's criteria, especially in a case of such magnitude that will surely be appealed on both sides, you can be sure.

    The lack of any seeming movement on Saturday does not bode well for a rapprochement. If Jamies side can manipulate a nullification through this strategy, what a coup for her. And, of course, what a coup for the city of Los Angeles in hopes of new ownership.

  7. And maybe they were trying to defraud creditors by knowingly signing both copies so that they could pull out the most beneficial version depending upn who was sued and why. Know that would another type of malpractice that no attorney would want the world to know about.

  8. When this case is over will you move on to

  9. I completely agree with you. The correct agreement is the Boston document. I think she fully understood what she negotiatedd at that time but never seriously considered it in the context of divorce. They were so concerned with cheating thier creditors should the Dodgers falter they never considered divorce.

    By the way, is there any chance Bingham has a signed conflict waiver?

  10. Josh agree with your main contention, but what I can't get my hands around in this case is once the divorce came up and I assume there problems before it became public, wouldn't it stand to reason that someone who had practiced family law would have wanted to investigate the documents that set up how their property was organized. In theory Jamie should have been all over this a year ago.

    I tend to think that some if not all was designed to potentially defraud creditors.

  11. I'm just a layman, I'm no lawyer. Does a judge take into account other factors besides the actual MPA in front of him? It's my opinion that Jamie knew what she was doing when she signed the MPA dividing the businesses to Frank and the residential properties to her. It's only when she learned of the clerical error in Exhibit A that she saw dollar signs. Would the judge ask himself why the exhibit would change? Like I said, I'm not a lawyer, but it appears pretty clear that the Dodgers were supposed to be Frank's.

  12. In response to Anon, 4:24 26/9/2010

    The McCourts' MPA intent was not to commit fraud, or to cheat potential creditors in bankruptcy court. Their intent was a legal document stating that which assets from 2003-2004 of the McCourts were not used to help finance of the purchase of the Los Angeles Dodgers, and therefore should be shield from seizure in case of the Dodgers filing for Bankruptcy. The McCourts basically used their Parking Lot at Seaport Square as collateral to buy the Dodgers, with some help in financing by MLB (a $75 million credit line) and News Corp, (who pretty much co-signed a B of A loaned to help the purchase)

    Creditors with secure loans are the first in line to get their money back in a bankruptcy. They are hardly going to be hoodwinked by a flimsy MPA, given that most Bankruptcy Law firms are built on sniffing out hidden assets, much like the trustee of the Bernie Madoff Ponzi Scheme founded where some funds were located. (His law firm is getting a cut for hunting out the assets)

    The residential properties of the McCourts probably not covered by the MPA, or they weren't amended to the MPA were the two Malibu beach houses purchase with loan from the Dodgers parking lots (and probably their revenue) Any creditor could make mincemeat out of the McCourts' protestation that the Malibu properties are shield from a hypothetical bankruptcy. Ditto with the money that the McCourts used for the upkeep of their houses. They could probably ask the court for liens against the houses, if their money was used for upkeep and help the value of the properties.

    Second, purposefully hiding assets, or trying to shield them the bankruptcy court in a deceitful manner is criminal. There is a difference between homestead exemption, and putting assets in another spouse's name with money acquired from loans/debt, and using the shield to prevent from paying the money back.

    The McCourts' actions and avarice living style, is very similar to high flying property developers. Live off the loans tied to the property, develop property, either have the leases/rents pay off the loans, and sell off property to acquire a new one to lessen the capital gain taxes. Real Estate is very much a wheeling dealing, fly by the seat of one's pants type of business. Either a property can be a cash cow, or it could be huge money drainer, where the developer is paying hundred of thousands in loan payments on interest alone.

  13. I haven't been following this case except for occasional mention in the press. But the case has a common thread with many similar cases.

    Woman signs pre-nup or other document specifying how the parties' separate property is to be treated. Then, when she discovers hubby has been sleeping around and is white hot with fury, and that his assets have appreciated much more than hers, she suddenly remembers that the document in court is not the same as the one she signed and asks the court to throw the whole thing out and split the couples' assets 50/50.

    It all too frequently works.

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