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Wednesday, August 02, 2006
 
Atlanta Hawks/Thrashers Ownership Dispute Continues


Both Mike and I are quoted in an article from American Lawyer Media's Daily Report on the continuing battle for control of the Limited Liability Company (LLC) which owns the NBA Atlanta Hawks and the NHL Thrashers. The article itself provides a good background of the dispute, which is sufficiently complicated that it's hard to encapsulate in a blog posting. But at heart, this is a dispute about the failure of co-venturers in a business to plan adequately for deadlock and the difficulty of valuing ownership shares in privately held businesses. In my Business Associations class, I teach a number of cases involving these issues from partnership, close corporation and LLC law, and the only thing that makes the Hawks/Thrashers dispute special is that the business is wound up in the pro leagues. Here's some info on the dispute from the Daily Report article:
About 16 months after the Atlanta Spirit LLC . . . bought the Hawks, Thrashers and Philips Arena operating rights from Time Warner Inc. for $250 million, the [LLC] has collapsed into a nasty litigation battle.

On one side is the Boston businessman Belkin . . . On the other side are a loose coalition of investors from Atlanta and the Maryland suburbs of Washington. . . . [including] Bruce Levenson, co-founder of business-information provider United Communications Group of Rockville, Md.

* * *

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.

* * *

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.





9 Comments:

I'm no lawyer, but in my limited experience with contracts, I'm aware that in some states like mine (KY), the "time is of the essence" element must be stipulated in the contract or it is presumed that the broader motivations inherent in the parties making a contract (e.g., for an owner to sell his property to a buyer) are to be honored.

While the contract may not have contemplated two parties objecting, by not expressing that time was of the essence, it also did not explicitly place a burden on either party to "beat" the other party to the fax machine. Therefore, it did not rule out the possibility of that happening, but only ruled out the possibility that anyone could object after five days--that is all that is explicitly stated.

So, it seems to me to be a problem of how Maryland law instructs that a gap in a contract such as this be reconciled, or if there is any past precedent that speaks to that.

The gap in the contract that Remar alleged, though, appears to be just that, by virtue of the lack of that "time is of the essence" tenet. Without it, the "race to the fax machine" idea asserted by Belkin's attorney is an "addition to" and not an "existing component of" the spirit of the contract.

Btw, really liked the Andy Peters piece from August 2006. Would love to see a follow-up, if there's enough news to be dug up to warrant one, but I'm not sure that's the case.

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