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.