text: Dodger Divorce: First day's motions.
  Yesterday, the Los Angeles Dodgers, and four related companies, filed for bankruptcy in Delaware. Because bankruptcy very often, as here, requires immediate judicial intervention into a foundering company's operations, representatives of the Dodgers and Major League Baseball will be in court this morning (if you are on Pacific Time). The purpose of this preliminary hearing is for the debtor--here, the Dodgers--to present its first day's motions.
  Ordinarily, the requests made at these hearings are granted, almost as a matter of course. However, baseball has likely been preparing for this day for some time, and does not intend to let Frank McCourt have full operational control of the team during the bankruptcy. The primary issue today is debtor-in-possession (DIP) financing.
  McCourt has secured a $150 million commitment from a JP Morgan-owned hedge fund, Highbridge Capital Management, to finance the team until a TV deal can be approved. The Dodgers would have access to $60 million immediately, and the remaining $90 million would be available at specific times moving forward. The DIP financing is not cheap: there is a $4.5 million fee off the top, and the Dodgers will pay 10% interest.
  Baseball will likely try to exert its influence on the bankruptcy immediately, offering to fund Dodgers' operations at a cheaper rate and lower overall commitment. While it is nearly unfathomable that either the Dodgers or baseball will take an insurmountable lead today, Judge Kevin Gross' decision will be at least instructive on the deference he will give to baseball's own policies and rules.
  Also at issue today will be certain motions from the Dodgers seeking approval of how it spends money during the bankruptcy. In bankruptcy, debtors are often asked to rework their banking practices after the case has been filed. The Dodgers argue that the best way to preserve continuity going forward is for the court to allow them to handle cash, pay players, and address other obligations just as they have in the past.
  Unless something dramatic happens and this gets out of bankruptcy very abruptly, we'll do something of a bankruptcy primer later on.
  As today's events unfold, a couple misconceptions you should be aware of. First, Manny Ramirez is not the Dodgers' largest creditor. He is the club's largest unsecured creditor. This distinction, while not very important now, will loom large as it comes time for Frank to formulate a plan.
  Second, it is very unlikely Jamie McCourt can stop this process from moving forward. Jamie is, today, in no position of power with any of the five filing entities. The Dodgers have not been ruled to be community property. To halt the bankruptcy, she would either need to convince the state court to issue an emergency declaration that she has decision-making power, or the bankruptcy court to dismiss the filing as made in bad faith or so prejudicial to her potential rights as to be inequitable. Those are tall orders.
  AnonymousJune 28, 2011 at 8:20 AMDidn't Kevin Gross pitch for the Dodgers?ReplyDeleteAnonymousJune 28, 2011 at 8:42 AM"As today's events unfold, a couple misconceptions you should be aware of. First, Manny Ramirez is not the Dodgers' largest creditor. He is the club's largest unsecured creditor. This distinction, while not very important now, will loom large as it comes time for Frank to formulate a plan." The largest unsecured creditor of the Los Angeles Dodgers is Jamie McCourt. Frank isn't going to put that in his bankruptcy filing, but that is the reality of the situation. She has California Community property law on her side. She will get a court ruling stating she entitled to 50% of the value of the Dodger Franchise. Frank's filings is more getting ahead of the story. It tries to spin the best possible light to a pretty dire situation, by stating that the most pressing debts are unsecured creditors, when he has some huge loan obligations soon, and he defaults he loses parts of his business entities like the parking lots. Frank's bankruptcy filings is the first shot, and it was pretty weak, there is going to be some tough salvos that are going to be fired in return by MLB. Frank filing the Dodgers for Bankruptcy effects them significantly, and they may demand the court that they handle the situation under the court's supervision.ReplyDeleteAnonymousJune 28, 2011 at 8:59 AMWhere can we find copies of the court filings? I have access to Westlaw/Lexis...Thanks!ReplyDeleteAnonymousJune 28, 2011 at 9:13 AMCurrently, Manny Ramirez IS the largest unsecured creditor because Jamie's ownership of the Dodgers has not been established in court. Judge Scott Gordon only threw out the Post-Marital Agreement. He has not ruled on the legal ownership of the team. Stupid, but that's how it is.ReplyDeleteAnonymousJune 28, 2011 at 9:32 AMIf you have a PACER account, you can access filings here, https://ecf.deb.uscourts.gov/ReplyDeleteAnonymousJune 28, 2011 at 9:47 AMin response to Anon 9:13am..The Post Nup agreement was Frank's only hope to keep the Dodgers as separate property. The reason why Judge Gordon hasn't ruled on the Dodgers is that both sides have been trying to work things out in a settlement. It is easier for a Family Law Judge to let both sides to hammer things out than rule from the high above on the bench. Jamie has the Community Property law squarely on her side. She is entitled to 50% of the value of their assets. Frank has batted down the doors in the last room of his castle, and Jamie and her legal posse are ready to break down the doors with their battery ram, Frank batted down the doors more to keep MLB at bay for the time being, however he filed for Bankruptcy to give him time, which he is also running out of, besides money.Jamie is the largest unsecured creditor. She doesn't deserved to be, given how she and Frank looted the club, but the divorce is far from settled, she is entitled to 50% of the value of all their assets. She and Frank can deal with the IRS, State of California, the State of Massachusetts, etc. for all their tax problems/stupidity.ReplyDeleteAnonymousJune 28, 2011 at 12:02 PMTechnically 9:13 a.m. is correct. Jamie doesn't have a vested property interest. She has an expectancy of a property interest. She couldn't go into any court, today, and say she has a 50% interest in the Dodgers because, as of today, she doesn't.ReplyDeleteAnonymousJune 28, 2011 at 12:53 PMI understand that Jamie does not yet have a vested property interest. My question is why does Frank? Or at least, why isn't there a stay in the State Court on taking significant action on marital property the rights to which are at issue and in the process of being adjudicated? As a practical matter, I will be very interested to see what the Bankruptcy Court does. From a point of view of the creditors, secured and otherwise, it seems to me accepting MLB's stewardship and payment of bills seems less costly than the DIP financing, which is usally approved only because there are no other reason quick options.ReplyDeleteAnonymousJune 28, 2011 at 2:19 PMIs there a place to access analysis of the proposed TV deal vs.the other teams and markets? Seems as if many media reports are taking it as given that the Fox deal was and is below "fair market value,". Not to mention MLB's claim to just that. What do the Dodgers get now in tv revenue? What should be expected in a new deal that backs the claim that the new ownership would be unfairly burdened with the Fox proposal? There is a frustrating lack of reporting on this,especially noting how central this is to Selig's stated position.ReplyDeleteAnonymousJune 28, 2011 at 2:57 PMin response to anon 12:02 There is no divorce settlement. Frank is playing legal triage, he has to fight off MLB first, then fight off Jamie. If anything, Frank filing bankruptcy is leverage against MLB and Jamie. It makes them given a bit on the sales prices of the Dodgers for the MLB, and it probably lowers Jamie's asking prices for a payout. To say, legally right now, Jamie doesn't have a say is much like saying The Soviets weren't in Berlin by March 1945, so they haven't won the war, yet, even though there is really nothing blocking their path. The future looks very inevitable for Frank, he has to give Jamie close to 50% of the value of his assets, whether as co owner of the Dodgers or after the team is sold. He doesn't have a legal fig leaf to block a move that the Dodgers are ruled as Community Property under California Family Law. Jamie is going to be a huge presence in the Bankruptcy proceedings, not right now, in the preliminary stages, but someone who wants something like $250 million if the Dodgers are sold.The whole thing is a complete mess.ReplyDeleteAnonymousJune 28, 2011 at 3:18 PMWhy is Frank fighting the inevitable? He cannot remain owner and the fans have voted on that through the turnstyle.ReplyDeleteAnonymousJune 28, 2011 at 3:37 PMJamie has a CP right to a portion of the value of the Dodgers, which the DIP financing just lowered, and therefore is a unsecured creditor of Frank not the Dodgers.ReplyDeleteAnonymousJune 28, 2011 at 4:09 PMNew to the site. What if Jamie or Frank died? Does community property pass to the estate? I assume these rich idiots would have planned for something like that in an estate plan but, then again, I would have thought they would have figured out a divorce settlement a year ago.ReplyDeleteAnonymousJune 28, 2011 at 4:30 PMIt's me, 12:53 above. Anybody on actual analysis of the tv deal or possible tv deals in general?ReplyDeleteAnonymousJune 28, 2011 at 7:54 PMTo clear up a misconception -- Jamie is NOT an unsecured creditor, or even a would-be unsecured creditor. Even if she wins in the divorce case and is ruled to be the 50% owner of the Dodgers, she is a not a creditor.ReplyDeleteberkowit28June 29, 2011 at 9:22 AMWhy is everyone, particularly MLB, on record as being "happy" about the $60 million loan and delay until July 20?Since MLB rules allow MLB to seize the team once McCourt applied for bankruptcy, why haven't they done so?If MLB were to seize the team, and McCourt wanted to get an injunction to prevent them doing so, which court would he ask - bankruptcy court in Delaware or some other court in California?Why was Shieffler removed from the team offices the day McCourt filed for bankruptcy, and why is he returning now (or is he?)?ReplyDeleteAnonymousJune 29, 2011 at 11:10 AMBerkotiw28 -- the answer to most of your questions is the automatic stay. The act of filing a bankruptcy petition gives rise to a stay -- an injunction -- against any efforts to collect against the debtor or the debtor's property. The stay is so broad that it covers virtually all actions having to do with the debtor's property, including any act to exercise control over the debtor's property. And it's called the "automatic stay" because it arises automatically upon the filing of a bankruptcy petition -- the debtor does not need to ask for it and the court does not have to order it or take any action to make it effective. The purpose of MLB's monitor (Shieffler) was to oversee operations of the Dodgers, including authority to review and approve transactions. MLB was rightly concerned that the monitor's presence and decision making power would be viewed by the court as an act to exercise control over the debtor's (the Dodgers') property. Therefore, MLB withdrew the monitor. MLB has the option of seeking "relief" from the stay – basically a lifting of the automatic injunction to the extent necessary to carry out whatever action they want to do. It's very tough to get relief from the automatic stay early in a bankruptcy case. The presumption is that the stay remains in effect and the debtor gets to operate its business.That relates to your other questions. MLB cannot seize the team because of the stay. That would clearly be an act to obtain possession of or exercise control over property of the debtor. If MLB wants to seize the team, it has to first seek, and be granted, relief from the automatic stay. Finally, MLB is happy about the award of the $60 million financing because the funds were critically necessary to maintaining the Dodgers' operations. Without the funds, the Dodgers would not have met payroll and other obligations due this week. The effects of this could have been serious: the team could have shut down. One way or another, the hearing yesterday was always going to end with the Dodgers obtaining approval of financing. The Dodgers wanted financing from someone other than MLB because if they take MLB's cash, they give up control to MLB (it's the Golden Rule: He who has the gold, makes the rules). Therefore, the Dodgers wanted approval of a loan from a hedge fund, even though that loan came with costly terms, including a $4.5 million fee and a 10% interest rate. MLB, meanwhile, offered to make a loan of the same amount of money, but with lower interest (7%) and no fee. But the Dodgers did not want this loan because it would have given MLB broad control and oversight over the Dodgers. Ultimately, the Dodgers and MLB reached a deal on interim financing of $60 million – it's still coming from the hedge fund, not MLB, but the fee was reduced from $4.5 million to $250,000, and some other onerous terms were eliminated. For example, the original proposed loan would have required the Dodgers to reach a deal to sell their TV broadcast rights within 60 days, but the new deal has no such requirement. Both sides view this as a good result. The Dodgers like it because they get the cash they desperately needed to continue to operate, and they got it from someone other than MLB, which allows them to maintain some control over their own destiny. MLB likes it because the Dodgers got the cash they need to operate, and under no circumstances did MLB want to the Dodgers to be at risk of not operating or paying their players. MLB also likes it because the loan now has less fees. This means that if MLB wants to ask the court to replace the hedge fund with a loan from MLB, the cost of doing so will be less. Finally, MLB was opposed to any requirement that the Dodgers sell any key assets – such as the TV rights – quickly, because MLB viewed this as a "fire sale." So MLB is happy that the financing that was approved no longer requires the Dodgers to sell the TV rights within 60 days.ReplyDeleteberkowit28June 29, 2011 at 2:11 PMThanks, Anonymous at 9:22 AM.Hmmmm, so if this stay maintains the status quo ante that includes the absence of MLB's control via their Monitor Schieffer, what's to prevent McCourt from getting up to further chicanery now without the Schieffer's oversight?ReplyDeleteAnonymousJune 29, 2011 at 2:53 PMFox contract with Frank's claim of 3 billion would be 150 million a year less if mlb claims of 1.7 billion. Yankee network revenue is 600 million a year.ReplyDeleteAnonymousJune 29, 2011 at 4:03 PMberkowit28 -- The short answer to your follow-up question is the Bankruptcy Court and the U.S. Bankruptcy Code. The Dodgers are only allowed to operate their business in the ordinary course. Anything outside of the ordinary course, they need to ask the Court for approval. For example, the financing they got approval of yesterday is outside of the ordinary course of business, so they had to ask the Court to approve it.ReplyDeleteAnonymousJune 29, 2011 at 5:30 PMYes, but the whole point with the McCourt's is that nothing is apparently outside of the ordinary course of business. Paying $300 a DAY for hair stylists; Giving their children no show no work jobs for hundreds of thousands of dollars a year; Buying half a dozen houses for $100 million +; Not paying workmen to perform work on their homes; Not paying taxes. NOTHING seems to be outside of the ordinary course of business for these people. Hopefully the Bankruptcy court can see through their games.ReplyDeleteAnonymousJune 30, 2011 at 5:58 AMAnonymous at 5:30 p.m. -- that is all beside the point because the McCourts are not in bankruptcy; the Dodgers are. The question is what is the ordinary course for the Dodgers. And there are two tests for this. The first is -- what do the Dodgers normally do in their ordinary course of business. The second is -- what do other similar businesses do? Here similar businesses are other MLB teams and other pro sports franchises generally. If it is something you would not expect sports franchise to do in the ordinary course of business, then they cannot do it without permission. Paying players, booking flights for team travel, paying vendors (e.g. the folks who sell them hotdogs or t-shirts), paying advertisers to promotions, is all unquestionably ordinary course. Doing something like using team money to buy the owners luxury homes is not ordinary course for a baseball team.ReplyDeleteberkowit28July 1, 2011 at 10:54 AMIf anyone's here:Since it appears to be federal law that once a company is taken to bankruptcy court, it's the court (judge) who now has control, and has to be petitioned to allow any substantive changes, what exactly does it mean where the MLB constitution states that MLB can seize a team if its owner files for bankrupcy? That seems to be meaningless garbage. What is it supposed to mean?If the instant that an owner files for bankruptcy, MLB can't do anything at all with it (nor can the owner, of course, outside of normal day-to-day operations) why has that clause been allowed to stand? MLB obviously cannot seize the team if a bankruptcy court now has control. Does it really mean something like "If a team files for bankruptcy, MLB can petition the bankruptcy court to allow it to take control of whatever the court wants to allow it to control?" That doesn't sound like much of anything, frankly.They even had to remove their monitor before appearing in court. Today they're petitioning to be allowed to send him back, arguing that the automatic stay shouldn't keep him out. (Why'd they remove him in the first place, then? Not wanting to be in the wrong if they lose this point, no doubt.)What would have happened if MLB had been more decisive and had seized the Dodgers - for "the good of baseball" rather than for bankruptcy - before McCourt could file for bankruptcy? Perhaps he would have applied - to which court? - for an emergency temporary injunction to prevent it? Where would he have contested MLB's right - which he signed to - to seize the Dodgers? He wouldn't have been able to file for bankruptcy until it was resolved who was actually in control, him or MLB.Is there any clear advantage to either McCourt or MLB to be arguing all this out now in bankruptcy court rather than in some other court (in California or in Delaware?) that would determine the legality of MLB's constitution's right to seize the team? Did MLB lay off because they didn't want that to happen and they'd prefer to be in bankruptcy court? Or is it to McCourt's advantage to be there, rather than to have directly contested MLB's power to prevent him selling the TV rights to FOX in some other court?It looks to me as if it's McCourt who is getting to choose the venue he prefers.ReplyDeletetheofauldersJuly 2, 2011 at 9:47 AM...representatives of the Dodgers and Major League Baseball will be in court this morning.Thank you for the excellent site and comments. I'm learning a ton. Aristotle writes, "The just involves four terms: the two persons and the two objects distributed" (NE 5.3). Frank and Jamie are two people fighting for equal shares of the Dodger team. As Anon 2:19 said, this is "a complete mess."ReplyDeleteAnonymousJuly 4, 2011 at 12:45 AMHere are the results after the final curtain is closed:Dodgers are sold.All McCourt properties are foreclosed and sold to 3rd parties (unless Frank & Jamie file personally) if they file they may be able to reach an agreement to keep some property but only after the IRS gets its due.The winner and still champion, The Internal Revenue Service (rightly so; where were the Dodgers independent CPA's advising on the problem of not repaying loans from officers/stockholders and after one year not posting to the P&L and taking payroll tax deductions so Frank & Jamie would have on their W-2's?) I'm guessing the Uncle Sam will have a bill of about $150 million with penalties & interest.Ah yes, the law firms representing the McCourts will not be able to extract their fees unless they were smart enough to have upfront retainers; my guess is that the properties will go for the outstanding loan balances or less than the outstanding loans. The law firms in the Dodger Bankruptcy may have a trimmed payment as the Bankruptcy Judge may not be too generous here.Final score for Dodgers as a team, no runs no hits and no errors.Final score for MLB, by approving the McCourts ownership no runs no hits and one (large) error.Final score for the McCourts no runs no hits and 2 errors (the errors are the 2 main reasons that business fail; poor management and not enough capital).The McCourts become wards of the State as they are indigent.ReplyDeleteAnonymousJuly 4, 2011 at 1:09 AMamen to the last comment!!!ReplyDeleteAnonymousJuly 5, 2011 at 4:50 PMBerkowit--The clause you are referring to is what is called a bankruptcy "ipso facto" clause. Ipso facto means "by the act itself," and a bankruptcy ipso facto clause is a clause that says a party breaches an agreement by the act of filing for bankruptcy. As a general rule, the U.S. Bankruptcy Code invalidates these clauses (look at 11 U.S.C. § 365(e)). If you think about it, the reason why the Bankruptcy Code invalidates these clauses is pretty logical and simple: if you could contract around the protections of the bankruptcy laws, then bankruptcy protection would be pretty meaningless. People continue to put these clauses in contracts for a few reasons, not the least of which is force of habit. They also put them in to protect against a debtor's insolvency. The clauses are often broadly worded and make it default to file for bankruptcy, but also a default to just be insolvent. The addition of the bankruptcy default is just a couple of extra lines. So keeping the whole clauses in is just belt and suspenders. Another reason to keep it in an agreement is that the bankruptcy case may dismissed. Let's say that MLB files a motion to have the Dodgers' bankruptcy case dismissed (they could argue it was filed in bad faith), or that Jamie McCourt files a similar motion (also arguing bad faith or that Frank McCourt did not have authority to place the Dodgers into bankruptcy). If the motion is granted, and the cases are dismissed, then the clause would be enforceable and MLB could use it as a ground to revoke McCourt's franchise agreement and take over the team.On your other point, the monitor was removed out of caution. While MLB believes they can keep the monitor in place notwithstanding the automatic stay, theirs is not a strong position. And the penalty for violating the stay is severe. They can be subject to punitive damages for a knowing violation. And "knowing" would include having a reason to believe that your act may violate the stay.If MLB had seized the Dodgers before they filed for bankruptcy, McCourt still likely would have filed for a bankruptcy. Had he done it soon after the seizure, MLB would have had to return it, just the same way the had to withdraw the monitor: The Bankruptcy Code also contains provisions for the surrender or return of property to the debtor.McCourt gained a temporary advantage by filing for bankruptcy. The presumption in a chapter 11 case is that the current owners and managers of a company stay in possession (hence "debtor in possession"). While other parties can move the court to appoint a chapter 11 trustee to displace management, courts are often reluctant to grant such a motion, especially early on in a case. This is especially true in Delaware bankruptcy courts. MLB laid off partly because they have to -- the Bankruptcy Code provides extensive protections for the debtor and is really concerned with maintaining the status quo. MLB may also perceive that the bankruptcy process will ultimately play to their advantage. MLB now has a check on Frank McCourt. He cannot do anything outside of the ordinary course of business without first filing a motion with the bankruptcy court (and court records are public records, so he's filing a public document). Also, McCourt and the Dodgers were out of money and facing real risk of default on their obligations to players and others. MLB wanted to avoid that at all costs. Bankruptcy affords the Dodgers an opportunity to tap financing and continue to pay their obligations (I know that sounds counterintuitive -- a company is bankrupt, yet now can access new funds -- but it's the reality). So MLB is happy with that aspect. Finally, I think MLB perceives that there is no way that the Dodgers exit bankruptcy with Frank McCourt still in control. Whether it is through a sale, an MLB takeover, or the appointment of a trustee, MLB will likely try to displace McCourt through the bankruptcy process.ReplyDeleteAnonymousDecember 18, 2011 at 3:59 PMHello, Recently i have heard about such companies as http://www.fairwaydivorce.com. I am in the middle of a horrible divorce, and really do not want to lose everything i have worked so hard for. My question is this; would a company like Fairway Divorce be a good choice? Has anyone had experience with a similar company? Please let me know,CharlesReplyDeleteessay helpFebruary 15, 2012 at 4:50 AMGreat post! Thanks a lot.ReplyDeletewriting dissertationFebruary 16, 2012 at 1:15 PMRegret about no have beed finding your blog erlier!ReplyDeletevalwritingFebruary 29, 2012 at 12:22 PMthanks a lot for the post! very interesting!ReplyDeleteit reviewMarch 28, 2012 at 10:13 PMgreat tratamento para queda de cabelo ReplyDeleteresearch papersApril 10, 2012 at 9:32 AMNice post! 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