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Judge hints he'll deny Dodgers discovery request

by Jamie Mason  |  Published October 6, 2011 at 12:40 PM
LADodgersHat227x128.jpgA Delaware judge is expected to rule on Los Angeles Dodgers LLC's request to expand the baseball team's scope of discovery as soon as today but has already indicated he'll reject it, according to a lawyer in the case.

The court originally ruled on Sept. 30 that the bankrupt baseball team wouldn't be permitted to take discovery into other Major League Baseball club teams.

However, the Dodgers sought to amend that order during a Wednesday, Oct. 5 hearing, so that it would be allowed to pursue discovery into other baseball clubs to determine if the commissioner has acted in good faith, court papers said.

Chief Judge Kevin Gross of the U.S. Bankruptcy Court for the District of Delaware in Wilmington is expected to rule by Thursday or Friday, according to the counsel to Major League Baseball, Glenn Kurtz of White & Case LLP.

While Gross hasn't yet ruled, he hinted that he would stand by his original Sept. 30 decision and deny the motion, Kurtz said, adding that the judge wanted time to think about it before making a final decision.

Gross told the court on Wednesday that no one should expect him to change his original decision and that he will issue a written ruling on the matter, Kurtz said.

MLB is opposed to the modified discovery, Kurtz said.

Gross scheduled a four-day hearing spanning Oct. 31, Nov. 1, Nov. 2 and Nov. 4, on the team's desire to obtain a new television deal and MLB's request to terminate the debtor's exclusivity to present a reorganization plan so that it can be sold to a new owner.

Dodgers owner Frank McCourt Jr. and MLB commissioner Bud Selig will testify at the hearing.

According to court filings, the hearing will explore if the debtor has breached its MLB agreements, if McCourt or the Dodgers have misappropriated or misused the debtor's assets, what condition the team is in financially and if the sale of the telecast rights is in the best interest of the debtor and MLB.

The hearing will also address the implications of rejecting its agreement with Fox Sports Net West 2 LLC, if McCourt is acting in his own best interests at the expense of the team and if Selig has acted in bad faith, court filings said.

"The court will determine whether debtors' request for relief is in their best interest and, if so, whether the commissioner's determination of what is in MLB's best interest takes precedence," Gross said in court filings.

MLB wants to terminate the debtor's exclusive right to file a plan because it believes the Dodgers' only path to emerge from Chapter 11 is through the sale of the team.

MLB's plan would sell the company to a well-capitalized owner able to fix the team's problems and position it for success in the future, MLB said.

If exclusivity isn't terminated, MLB wants to force the Dodgers to assume or reject its agreements with MLB. The Dodgers would need to cure all breaches in order to assume its MLB agreements, which it can't do if it enters into a media rights sale over objections from MLB.

During the hearing, Gross will also consider a separate motion from MLB that seeks to disqualify Dewey & LeBoeuf LLP and Young Conaway Stargatt & Taylor LLP as debtor counsel. MLB said it wants debtor counsel removed from the case because it is alleging that both firms are working in the best interest of McCourt rather than the debtor.

Meanwhile, the Dodgers want court approval to begin marketing its television rights for sale.

Through the sale of its media rights, the Dodgers would license the rights to telecast roughly 150 preseason and regular season games each year, beginning with the 2014 MLB season. The deal would have at least a five-year term.

Licensing the telecast rights would provide the baseball team with enough liquidity to pay all creditors in full, repay its $150 million debtor-in-possession loan from MLB, meet its operational needs over a longer term and provide a significant return to its equity holders, court documents said.

Shortly before filing for Chapter 11 on June 27, the Dodgers struck a new 14-year deal with FSN Prime Ticket, but Selig did not approve the transaction, in part because of restrictions in the current deal that prevented negotiations with other potential purchasers.

The team blamed the bankruptcy filing on Selig's refusal to approve the TV deal, as well as underlying cash flow issues stemming from sliding attendance, some $22 million in deferred compensation due to players and the need to share its revenue with other clubs.

The team has paid $10 million in deferred compensation this year and was scheduled to make an additional $10.5 million payment by June 30, court filings said. The Dodgers also said the appointment of a receiver by MLB in April "generated adverse publicity."

MLB, however, has faulted McCourt for the bankruptcy case. "Having siphoned off well over $100 million in club revenues and obviously unable to properly distinguish between his personal interests and those of the club, Frank McCourt has driven the Los Angeles Dodgers to a liquidity crisis so severe that absent extraordinary measures, the club would be unable to make its payroll," MLB said in court filings.

The Dodgers have a storied history that dates to the late 1800s. The team was originally located in Brooklyn, N.Y., and derives its name from "fans who used to 'dodge' that city's trolleys."

Later, the franchise broke the color barrier in baseball when it signed Jackie Robinson in 1945. In 1958 it moved to Los Angeles. The Dodgers have been playing in their current stadium since 1962 and have won six World Series championships.

McCourt bought the team in early 2004 from Fox Entertainment Group Inc., the parent of FSN Prime Ticket. McCourt paid $330 million for the team and spent a further $100 million to acquire its stadium and real estate surrounding the stadium.

McCourt's wife, Jamie, has also asserted an ownership interest. The couple are in the middle of messy divorce proceedings.

Debtor counsel Bruce Bennett, Sidney Levinson, Martin Bienenstock and Philip Abelson of Dewey & LeBoeuf and Robert S. Brady of Young Conaway Stargatt & Taylor did not return calls for comment Thursday, Oct. 6.

In addition to Kurtz, counsel to MLB is Mark Thomas, Bradley I. Ruskin and Jeffrey Levitan of Proskauer Rose LLP; Thomas Lauria and John K. Cunningham of White & Case; and Jeffrey M. Schlerf of Fox Rothschild LLP.

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Tags: Bud Selig | Chapter 11 | Delaware judge | Dewey & LeBoeuf LLP | DIP | Fox Rothschild LLP | Fox Sports Net West 2 LLC | Frank McCourt Jr. | FSN Prime Ticket | Glenn Kurtz | good faith | Jamie McCourt | Kevin Gross | licensing | Los Angeles Dodgers | Major League Baseball | MLB | Proskauer Rose LLP | telecast | U.S. Bankruptcy Court | White & Case LLP | Young Conaway Stargatt & Taylor LLP

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