Dodgers reorganization plan approved; $2.15 billion sale set to close

By Jim Witters

Wilmington, Del., April 16 - The record $2.15 billion sale of the Los Angeles Dodgers LLC baseball team to Guggenheim Baseball Management LLC received court confirmation April 13 over objections from Major League Baseball that the team failed to provide essential documents in a timely manner to gain the commissioner's imprimatur.

Capping a two-part, five-hour hearing that ended about 9 p.m. ET, judge Kevin Gross found that the reorganization plan met the bankruptcy code criteria for confirmation and that none of the objections raised prohibited confirmation.

Those attending the hearing included current Dodgers owner Frank McCourt and Guggenhiem executives Stan Kasten, Mark Walter and Eric Holman, who is president of Magic Johnson Enterprises.

"We are pleased to have successfully concluded the Chapter 11 reorganization process. All the organization's goals in the reorganization cases have been achieved. We look forward to returning all of our attention to Dodger baseball," the Dodgers said in a press release.

Gross said he had expected a "much more friendly" and celebratory proceeding, especially considering that a November 2011 agreement calls for the debtors and Major League Baseball to "do everything possible" to achieve confirmation of a Chapter 11 plan.

But contentiousness ruled the day, as MLB claimed the reorganization plan violated the rules, regulations and constitution of the league, Frank McCourt's ex-wife asserted a claim to a portion of the sale proceeds and the Los Angeles Times newspaper attempted to pry loose a document the debtors sought to keep secret.

The sale is scheduled to close on April 30.

The sale

As previously reported, the Dodgers and owner Frank McCourt announced March 27 that a $2 billion deal had been reached for the sale of the team.

The buyer group includes Mark R. Walter as its controlling partner, Earvin "Magic" Johnson, Peter Guber, Stan Kasten, Bobby Patton and Todd Boehly.

McCourt and certain affiliates of the purchasers will also be forming a joint venture that will acquire the Chavez Ravine property where Dodger Stadium sits for $150 million.

MLB objections

MLB attorney Thomas Luria said the league had issues with the purchase agreement, issues with the plan, issues with the confirmation order and issues with the covenants, conditions and restrictions concerning the property and parking lots surrounding Dodger Stadium.

By far the largest impediment to plan confirmation arose when Luria claimed that the plan of reorganization would establish a two-tiered league, with 29 teams operating under the tenets of Major League Baseball and the Dodgers operating in a special protective cocoon.

The cocoon - a stipulation in the plan of reorganization that perpetuates the involvement of a mediator beyond the plan's effective date - gives the Dodgers legal protections and remedies not enjoyed by the league's 29 other teams, Lauria said.

The mediation arrangement stems from the November agreement between MLB and the Dodgers.

Lauria said the league wanted three changes before confirmation of the plan:

• A statement that all claims would be paid in full in cash on the effective date;

• An end to the role of the mediator on the plan effective date; and

• An opportunity for the league to review the covenants, conditions and restrictions concerning the parking lots after plan confirmation, with the right to seek a reversal of confirmation should the documents contain unacceptable terms.

Dodgers attorney Bruce Bennett said the objections represented "the animosity of the league toward Mr. McCourt" and an attempt to "cause disruption to Mr. McCourt."

Bennett agreed to the statement calling for all claims to be paid in cash in full on the effective date.

The jurisdiction of the mediator is "built into the settlement agreement," Bennett said. And the disputes over documentation and the parking lots have been referred to the mediator.

The continuing availability of the mediation process to settle disputes between the team and the league "are essential to the new owners coming in," he said.

MLB's review is limited to the ownership structure, the financial structure and the financing arrangements, all of which have been disclosed, Bennett said.

Lauria said the league has not had sufficient time to review all the pertinent documents and sign off on the sale, as required by league rules. He said the process involves a review and report by the league's ownership committee, a review and report by the executive council and a vote by the teams.

"We need to make sure the deal that closes is the deal the owners voted on," he said.

Lauria sought to "push confirmation off until we can resolve these substantive issues."

But Bennett said April 13 at midnight was the latest plan confirmation could be entered into the court docket to allow the sale of the team to close by the end of April.

If the confirmation came a day - or even a few hours - later, the earliest closing date would fall in May, because of the requirement of a 14-day appeal period.

The settlement agreement calls for a sale to close by the end of April. And McCourt is required to pay his ex-wife $131 million by April 30.

Judge Gross said the issues related to the parking lots are unrelated to plan confirmation, because the settlement agreement leaves to Frank McCourt the decision on whether to sell the lots with the team, sell them separately or maintain ownership.

He said the mediator's jurisdiction will continue in force after the effective date, but only regarding issues related to the MLB/Dodgers settlement agreement and not to the Dodgers' obligations in its compliance with MLB's rules and regulations.

As for the review of documents by MLB, Gross said he would "hear from the parties at a future date if it becomes necessary."

L.A. Times objection

The Los Angeles Times newspaper sought access to the covenants, conditions and restrictions concerning the property and parking lots surrounding Dodger Stadium, claiming the document is a public record because it was filed with the court.

The Dodgers sought court approval to file the document under seal.

"Through the motion, the Los Angeles Dodgers LLC and related debtors seek to shield from public view all conditions for a sale of the Dodgers relating to land use surrounding Dodger Stadium. However, the debtors cannot overcome the well-established presumption of public access to judicial records under both constitutional and statutory jurisprudence," the newspaper objection stated.

Specifically, sealing the document denies the public information about "covenants, conditions, restrictions and easements for Chavez Ravine" that are part of the joint reorganization plan, the objection stated.

The L.A. Times argued that documents may be sealed only when they contain a fide trade secret or confidential business information, "the disclosure of which would cause ... actual, tangible competitive harm" and then only if the sealing is narrowly tailored to serve that interest.

Dodgers attorney Sidney P. Levinson said the document is in draft form and would be made public in a filing with the bankruptcy court and with Los Angeles County when in its final form.

Chad R. Bowman, representing Los Angeles Times Communications LLC, said that the mere filing of the document with the bankruptcy court made it public, whether in draft form or final.

He said the debtors conceded that the document contains no information that would put the Dodgers at a competitive disadvantage.

Levinson said that the document was submitted as an attachment to a motion to seal it. Since the court had not ruled on the motion to seal, the document never was technically part of the docket, he said.

The Dodgers withdrew the motion to submit the document under seal and, with it, the document itself.

"This is an unusual situation. But the document was withdrawn and is not part of the record and will not be considered by this court," Gross said in ruling in favor of the Dodgers.

Jamie McCourt claim

Levinson said attorneys for Jamie McCourt had filed a claim against the debtors' estates for the $131 million Frank McCourt agreed to pay as part of a divorce settlement.

The debtors are not part of the stipulated agreement and owe Jamie McCourt no money, he said. But Jamie McCourt sought to get paid out of the proceeds of the sale of the team.

During negotiations, the Dodgers persuaded the Guggenheim group to pay Jamie McCourt out of the sale proceeds at closing.

"We sent over a stipulation more than a week ago," with a reply deadline of April 10, Levinson said.

On the evening of April 12, the debtors received a response stating that the payment must come from Frank McCourt or an entity he controls.

"There can't be a claim against the debtors here. The court needs to take that claim against the debtors off the docket," Levinson said.

Attorney Laura Davis Jones, representing Jamie McCourt, said Gross needed to take no action during the April 13 hearing.

"Let's see where this takes us," she said. "We are just trying to conform to the stipulated agreement. Frank McCourt used the assets of the debtor to backstop the stipulated judgment."

Gross ruled that Jamie McCourt's claim is a personal claim against her ex-husband, not a claim against the debtors. He dismissed the claim.

Access to ticket funds

Gross also granted the Dodgers access to as much as $20 million of the funds held by Dodger Tickets LLC in accounts at U.S. Bank NA.

The Dodgers hope to use about $8 million of the funds to pay operating expenses.

As previously reported, Dodger Tickets is a non-debtor affiliate of the Dodgers and a direct subsidiary of debtor LA Real Estate LLC. Dodger Tickets is the issuer under and indenture and security agreement dated May 11, 2005.

The cash proceeds in the ticket accounts are subject to a lien in favor of the note trustee for the benefit of the secured parties, court documents state.

In the normal course of business, proceeds from the ticket accounts flow to the Dodgers after expenses are paid and payments are made to the tickets reserve accounts, according to court documents.

The Chapter 11 bankruptcy filing "trapped" the excess proceeds in the accounts, court documents state.

Syncora Guarantee, Inc., the note insurer, has sole authority to waive the effects of the filing and free the proceeds for disbursement to the Dodgers, court documents state.

A binding letter of intent among the Syncora, the Dodgers and Dodger Tickets signed April 5 provides for release of the money when the sale of the team closes.

Syncora agreed to release $8 million before the April 30 closing.

If the sale fails to close by April 30, Syncora has agreed to the release of an additional $12 million before May 31.

The note trustee will be granted an allowed administrative expense claim in the amount of any funds disbursed from the tickets accounts to the Dodgers. That claim will become payable only if the team sale fails to close by May 31, court documents state.

After the sale closes, all money in the ticket accounts will be released in the ordinary course of business, as it occurred before the bankruptcy filing.

The Dodgers believe the U.S. Bank accounts hold more than $31 million, according to court documents.

Major League Baseball team Los Angeles Dodgers filed for bankruptcy on June 27, 2011. Its Chapter 11 case number is 11-12010.

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