Thursday, July 31, 2014

California Probate Law - LA Clippers Sale Trial

A few days ago a California probate court ruled in the Donald Sterling/Shelly Sterling trust dispute concerning the pending sale of the Los Angeles Clippers to Steve Balmer (Former Microsoft CEO) for $2 Billion.  The pending sale occurred under the threat of an NBA takeover and forced sale of the franchise due to allegations discussed at this link.   The judge found that Shelly Sterling properly followed the trusts requirements to remove Donald Sterling as a trustee under a capacity clause.  The parties had agreed not to include Donald Sterling's actual physical/mental condition as an issue in the trial.  So that issue was not before the court.  Presumably the idea there was to avoid an expert vs. expert dispute on capacity and resolve the trial more quickly.  Donald Sterling revoked the trust after his wife had executed a binding term sheet for the sale of the team. 

The National Law Journal Article from July 30, 2014 on the court's decision noted two main new precedents that may be set by the case.  The first issue is the invocation of Section 1310b of the California Probate Code.  Generally there is an automatic stay of the probate trial court's ruling when an appeal is filed in California under Section 1310a of the Probate Code.  Section 1310b allows the court to appoint a temporary trustee to exercise the trustee's powers as though no appeal was pending where there is a need to prevent injury or loss to a person or property.  Apparently this section has been only rarely invoked in the past.  Its application in the circumstances of a sale is new.  However, in this instance the purchase price is the highest offered for an American sports franchise and considerably higher than the other offers in the bidding or Forbes Magazine's estimate of the value of the team from January 2014.  The offer also comes with an expiration date.  You can never really know how much the team would go for an a second round of bidding, but now that the previous bids are public knowledge it probably would be less than the current offer.  Sterling bought the then San Diego Clippers for $12.5 million in 1981 and moved them to Los Angeles in 1984 which at the time lead to its own set of conflict and litigation with the NBA.  So it is probably more likely that not, as the court ruled, that the team would lose value if it had to go back on the market for new bids.  The seems to be a decent plain language interpretation of loss and injury as they exist in the statute.  The main question marks here are that this section has not been used much and it was used in distinct contexts from this one.  The court's ruling does not prevent an appeal.  It just means that the sale can close and that there is no stay of that sale.  If Donald Sterling were to prevail on appeal he could be awarded monetary damages rather than getting back the team.  He could seek review and an injunction of the 1310b ruling and the whole case before the California Court of Appeals and failing that the California Supreme Court.  The standard of review on appeal would probably be abuse of discretion by the trial court.  That is a tough standard to meet in any appeal.

The second issue mentioned in the Article revolves around the revocation of the trust.  The action itself, which might according to witnesses who testified at trial cause $500 million in loans to be recalled by banks, was not the focus of the court so much as the powers of the trustee after termination.  Trustees can wind up the affairs of a terminated trust under Section 15407(B) of the California Probate Code.  Although this power does not always involve major transactions, the court ruled that the sale of the team was a winding up transaction which the Shelly as trustee had the power to complete.  This is especially true since the sale terms sheet had been signed and made binding before the trust was revoked.