best article I read about ownership dog fight

[emorywjs]

http://www.law.mc.edu/faculty/news/mccann8_18.htm

[coachx]

Thanks, great read.

[Duff_Man]

Wait, I don't see anything about Vick in this article. I thought it was about dog fighting.

[Diesel]

Hawks' owners find breaking up hard to do

At issue is valuation of Steven Belkin's share of Hawks and Thrashers

Tuesday, August 1, 2006

By ANDY PETERS, Staff Reporter

THE LEGAL WAR between Steven B. Belkin and a group of Atlanta and Maryland investors over the Atlanta Hawks and Thrashers demonstrates how a dispute over the meaning of three paragraphs in a 13-page contract can keep lawyers and their clients in court for years.

At issue is the process for the other owners to buy out Belkin, and especially how to value his interest in the sports franchises.

Some of the negotiation and arguments have taken on the tone of the wheeling and dealing of a team general manager, particularly over the issue of how to choose the investment bank that was to value Belkin's stake.

Consider the following excerpt of Wilmer Cutler Pickering Hale and Dorr partner John G. Fabiano's oral argument during a Feb. 24 hearing in Montgomery County (Md.) Circuit Court. Fabiano represents Belkin:

"(Belkin's attorney said) HTPA [the Atlanta and Maryland owners] traded the right to pick the first eligible banker to the Belkin Group in return for the Belkin Group's agreement that either party could object," Fabiano said. "Mr. Baltz [a King & Spalding attorney who represented the legal partnership] tells a little different story. He says HTPA traded the right to pick the first eligible banker to the Belkin Group in return for having the NBA Commissioner pull the third name out of a hat, rather than have banker number one and banker number two make the choice."

About 16 months after the Atlanta Spirit LLC partnership bought the Hawks, Thrashers and Philips Arena operating rights from Time Warner Inc. for $250 million, the partnership has collapsed into a nasty litigation battle.

On one side is the Boston businessman Belkin, a Cornell University trustee and pro basketball enthusiast who tried to buy the Boston Celtics and Charlotte Bobcats before he joined the group that purchased the Hawks and Thrashers. Founder of credit card marketing firm Trans National Group, Belkin was recruited to play college basketball for Cornell.

On the other side are a loose coalition of investors from Atlanta and the Maryland suburbs of Washington. This group includes Ted Turner's son-in-law, J. Rutherford Seydel II, who is a corporate-law partner at Lawson, Davis, Pickren & Seydel; Atlanta businessman J. Michael Gearon Jr., son of former Hawks president and chairman J. Michael Gearon Sr.; and Bruce Levenson, co-founder of business-information provider United Communications Group of Rockville, Md.

Originally, when Belkin still was a member of the partnership, the Atlanta Spirit group was represented by the same lawyers: King & Spalding partners Raymond E. Baltz Jr. and Michael J. Egan III. King & Spalding advised the group on its purchase of the sports teams from Time Warner.

But even when King & Spalding was the group's counsel, each owner had his own personal attorney. Seydel, for example, leaned on Rogers & Hardin partner Edward J. "Jack" Hardin, while Belkin used his company's general counsel, Felix S. Riccio. King & Spalding collectively represented Atlanta Spirit in its negotiations with Time Warner Inc. on purchasing the teams, sitting across the table from Time Warner's counsel, Cravath, Swaine & Moore.

King & Spalding's lawyers on the deal, Baltz and Egan, declined to comment for this article. All other attorneys involved in the litigation also declined to comment.

As the Atlanta Spirit group was splitting apart, King & Spalding remained counsel to the legal partnership. But Belkin obtained new counsel, Goodwin Procter partner Richard E. Floor and others.

Tiff over player trade

The rancor between Belkin and the other owners apparently began soon after the group bought the teams from Time Warner. But the final straw was the Joe Johnson trade in August 2005.

Belkin tried to block the other owners from approving the Hawks' proposed trade for Phoenix Suns swingman Johnson, saying Hawks General Manager Billy Knight wanted to pay too much for Johnson-two first-round draft picks and forward Boris Diaw.

That dispute went to court in Massachusetts, culminating with the Hawks making the Johnson trade, and the other owners yanking Belkin's managerial control of the franchise. The owners also decided to buy out Belkin's stake, getting rid of him for good. That's when things really started to get complicated.

Baltz, representing the partnership, and Floor, representing Belkin, engaged in negotiations regarding a complex procedure to determine a value for Belkin's stake in the Hawks and Thrashers, according to court filings. That procedure, which was designed to produce three separate appraisals, has been the focus of litigation in the past year between the two sides.

The litigation revolves around numerous questions, all of which are still hotly disputed by both parties. The questions include:

Who was allowed to choose the first investment bank to prepare an appraisal of Belkin's stake? Who was allowed to choose the second bank? Who was allowed to object to the first appraisal? What was supposed to happen if both sides objected to the first appraisal? What was the time frame for when objections could be made to the first or second appraisals? When did Belkin receive a copy of the first appraisal? Was the first appraisal supposed to have been delivered by hand, e-mail or fax? What was the procedure for selecting and accepting a third investment bank's appraisal?

Ultimately, only two appraisals were submitted, the second nearly twice as expensive as the first. The first appraisal, by Citigroup Inc., puts Belkin's stake at $88 million. The second appraisal, by JPMorgan Chase & Co., says Belkin's stake is worth $140 million.

Not surprisingly, Belkin wants the second appraisal to stand, but the Atlanta and Maryland owners oppose it. Belkin paid $11.7 million for his stake in Atlanta Spirit, according to a court filing by the other owners' lawyers.

It's far from clear how the two sides came to disagree so profoundly on what was allowed in the process of choosing an investment bank's appraisal.

Transcripts of court hearings on how the purchase and sale agreement was written shed some light on how much each side was trying to protect their ownership interests and squeeze as much money as possible out of the opposing side.

The lawyers focused on three paragraphs of the purchase and sale agreement. Two paragraphs deal with the time frame and order by which three investment banks could be selected to prepare appraisals.

Belkin's attorneys claim those paragraphs are clear in their meaning: Belkin was allowed to choose the first banker, both sides could object, and the first to object was allowed to pick the next bank. Those rules were supposed to create a systematic process for determining a value of Belkin's stake.

"The [agreement] in paragraph 1.2 (e) doesn't say anything about two objecting parties or two eligible bankers," Fabiano said on Feb. 24. "It doesn't use plurals, it uses a singular term, the objecting party. . it talks about the objecting party picking the second banker, not plural, not two, just one."

In other words, whichever owner submitted the first objection to the first investment bank's report got to choose the second investment bank. The contract did not allow for both sides to object to the first bank's report, only one side.

The Gearon-Levenson-Seydel partnership disagreed vehemently. They said the contract did allow for both sides to object, but it lacked language setting the rules for what should happen if both sides did object.

"There is an essential element in this contract that needs to be supplied by the court, that is who chooses the second banker in the circumstance when they both object," Rogers & Hardin partner Robert B. Remar said in a Feb. 24 hearing.

Timing is key

Consider this excerpt from paragraph 1.2 (e):

"If either HTPA (the Atlanta and Maryland owners) or the Belkin Group objects to the First Banker's (fair market value) within five business days after receiving the First Eligible Banker's report, the objecting party shall engage (at the objecting party's expense) another Eligible Banker within ten Business Days after such objection."

When an objection was filed, and who filed it, then became a critical issue in the litigation. Belkin objected to the Citigroup appraisal within one minute of receiving it, according to court documents. The other side accused Belkin of having unfair access to the appraisal, giving him a leg up on filing an objection; they also said there was nothing in the agreement that stipulated whoever filed the objection first had the right to pick the second investment bank.

"[The contract] makes no reference whatsoever to time being of the essence" in filing an objection, Remar argued on Feb. 24. "We don't want to be in a position where Belkin gets to control the process because he happened to be at [his computer or fax machine to receive the appraisal] first and we weren't."

The two sides also disagree on the contract's proposed remedy for Belkin, in the event the other owners didn't buy out his stake.

"Belkin is attempting to transform a vigorously negotiated provision dealing with a specific circumstance into a remedy for any alleged breach of the [purchase and sale agreement]," Marcus & Bonsib partner Bruce L. Marcus of Greenbelt, Md. said in a June 19 hearing. "His argument is contrary to the plain meaning of the [purchase and sale agreement] and the intent of the parties. It presents a classic case of overreaching."

Montgomery County Circuit Judge Judge Eric M. Johnson in June ruled in favor of Belkin on the remedy, saying the other owners were required to sell their stake to Belkin at cost, because they failed to buy Belkin's stake by a certain date. The other owners are appealing Johnson's ruling to Maryland's Court of Special Appeals. The appeal process could last at least a year and as long as four years, Johnson said.

Law professors who teach sports law and contribute to a sports-law blog have differing opinions on how the dispute will end. One believes Belkin will end up with the Hawks, although he may have to pay the other owners more than he wants.

"It's a little hard to read because the parties seem to really detest one another and that affects how they perceive what's in their best interests," said Mississippi College School of Law professor Michael McCann, a co-editor of the Sports Law Blog.

"Levenson and Gearon are going to be well-compensated for selling their interests to Belkin," McCann said.

But another thinks the other owners will buy out Belkin for a handsome price. "I would expect that the non-Belkin faction will be forced to pay considerably more than they have expressed a willingness so far to buy out Belkin," said University of Toledo College of Law professor Geoffrey C. Rapp, another co-editor of the Sports Law Blog.

Belkin's aggressive legal strategy appeared to have swayed Judge Johnson, and the current legal ruling does appear to favor Belkin, both McCann and Rapp said.

But the status quo seems to favor the other investors: They run the team, and they've paid Belkin nothing.

Belkin counsel's Fabiano has argued that the Atlanta and Maryland owners are deliberately stalling. The other owners on July 20 posted a $11.4 million bond to protect Belkin from potential declines in the team's value while the matter is tied up in court.

"Steve Belkin needs this court's prompt help," Fabiano said. "He gave up everything last August and he hasn't gotten one penny in return.

"The defendants still haven't paid Mr. Belkin a dime," Fabiano said. "They . continue to throw monkey wrenches into the valuation process. They're in no hurry to complete this process and pay Mr. Belkin hundreds of millions of dollars that they owe him."

The case is SB Belkin LLC v. HTPA Holding Co. LLC, No. 266748 (Montgomery County (Md.) Circuit Ct., filed Nov. 23, 2005).

[DrReality]

This article is from a year ago and we're still strung out on this thing.

[AHF]

That is a good article. It doesn't spell out everything but gives a decent summary.

[Packfill]

If the Spirit Group lose then it seems they may have a strong malpractice claim against King & Spaulding.

Really poor drafting on their part. I would get reemed if I gave a draft with such lose language to one of the partners I work with.

[scottt]

I agree. King and Spalding got undressed by the other lawyers. Unless the appeals court in Maryland bails them out, K & S is going to pay a handsome malpractice settlement.

[vdunkndunk]

I know I'm probably in the minority on this one, but I feel kind of bad for K&S. Would have been fun to work on this case because of the Hawks connection, except for the fact that it's turned into a complete nightmare.

[GMyrberg]

Well, I certainly don't feel sorry for King and Spaulding. It's a huge, multi-million dollar law firm. They'll get through it okay. Hard to believe that it comes down to whether something is plural or singular (English teacher, here). It looks like the AS lawyers just never thought long and hard enough about worst case scenarios. If they had (and who said Belkin was everybody's friend anyway?), the wording of the valuation process would have been much more specific. The AS lawyers' argument seems to be, "Yeah, we made a mistake. Just don't punish us for it." Clearly Belkin benefits beyond what was imagined. I wish I could parlay $11.5 million into $140 million by just raising an objection.

I don't even blame Belkin. The NBA is a business and the Spirit group has proven not to be very good at it. Belkin is probably better at what he does. Just because I admire Gordon Gecko's business savvy, doesn't mean I'd hold him up as a role model, though. Belkin's cut throat ways would result, as many here have opined, in a team run on the cheap. Worst part is that this looks like it could out drag longer (four years) than any Hawks fan should have to endure.

Good read. Thanks.

[BusBoyIsBack]

Can you refrain from using the word "dog fight" around here for a little while.