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.