Major League Baseball on Friday asked a federal bankruptcy judge to order the sale of the Dodgers, arguing in court papers that Frank McCourt’s plan to retain ownership of the team is “dead on arrival.”
MLB does not intend to approve any sale of television rights that would help McCourt maintain ownership of the Dodgers, according to the filing, and the league could enforce its ability to strip McCourt of the team once it emerged from bankruptcy protection.
“Mr. McCourt cannot hide the Dodgers in bankruptcy forever,” the filing read.
The request accelerates the legal confrontation at the heart of the case: Would the Bankruptcy Court override the rules of Major League Baseball?
A hearing is set Oct. 12, during a National League Championship Series in which the Dodgers will not participate.
McCourt and his ex-wife Jamie McCourt announced their separation two years ago, on the eve of the NLCS between the Dodgers and Philadelphia Phillies. Since then, the Dodgers have operated under what attorneys for Frank McCourt have called a “cloud of uncertainty” regarding ownership of the team.
The league asked the judge to act even before the expiration of McCourt’s exclusive window to propose a reorganization plan so the Dodgers could “emerge quickly from bankruptcy under new ownership and with the financial stability necessary to adequately prepare for the 2012 baseball season and beyond.”
In a statement, the Dodgers called the filing “meritless” and said MLB had advocated for “an unnecessary and value-destroying distressed sale of the team.”
The Dodgers asked the court last week to authorize an auction of the team’s television rights, the key to McCourt’s strategy to emerge from the bankruptcy proceedings as owner.
In their filing, the Dodgers said they would try to work with Commissioner Bud Selig but would ask the court to approve a television rights sale if he would not.
“The only path to emergence is through a sale of the Dodgers,” the MLB filing reads.
In their statement, the Dodgers said that, under U.S. bankruptcy law, “liquidation is the last resort, not the first option.”
McCourt has argued that Selig forced the Dodgers into bankruptcy by rejecting a proposed broadcast contract with Fox Sports.
In Friday’s filing, the league asserted Selig’s authority. The league also argued that the Dodgers are McCourt’s sole significant source of income and that some revenues from any television deal would be diverted toward his personal expenses as well as to his obligations to his ex-wife rather than invested in upgrades to the team and to Dodger Stadium.
“The sale proposed in the media rights motion -- the centerpiece of the [Dodgers’] sole reorganization strategy -- is dead on arrival,” the filing read.
The current Fox Sports contract with the Dodgers expires in 2013, and Fox holds exclusive negotiating rights for another 14 months.
Fox has not filed a formal response to the Dodgers’ request.
However, in a related filing, Fox said it would object to “any action by any party that interferes with, impairs or undermines” its current contact with the Dodgers.
A sale of TV rights now not only would subject the Dodgers to significant damages in a lawsuit from Fox, the league argued, but could result in MLB discipline, up to and including the team’s suspension or termination from the league.
“No one will pay the [Dodgers] to broadcast Dodgers games if the club is not part of Major League Baseball,” the filing reads. “Consequently, the [Dodgers’] path in this case is a dead end or worse.”
The filing also cites three other grounds for possible MLB action against McCourt, including the Dodgers’ dismissal of league-appointed trustee Tom Schieffer upon filing for bankruptcy.
Thomas Salerno, the lead attorney for the NHL’s Phoenix Coyotes during that team’s bankruptcy, called the MLB filing “gutsy” but said it would not necessarily succeed.
In the Coyotes’ case, the Bankruptcy Court agreed that the league could set its own rules for franchise relocation, rejecting the team’s effort to sell to a high bidder who intended to move the franchise from Arizona to Canada, against the league’s wishes.
The judge sided with the league. “At the end of the day, the judge said, ‘You have to live by those agreements,’” Salerno said.
In the Dodgers’ case, by announcing its rejection of any television deal before an auction could take place, and by signaling its veto of a plan that McCourt could use to pay all the Dodgers’ creditors in full, Salerno said, the league could be seen as not acting in good faith.
“I think MLB runs a risk that the judge says that’s not reasonable,” Salerno said.
Since a settlement in the case is highly unlikely, Judge Kevin Gross could issue a ruling that stands as precedent for other disputes between owners and leagues.
“This case is clearly going to make law,” Salerno said. “The league is going all in.”
In a separate filing, the league asked that the Dodgers’ bankruptcy attorneys be disqualified because they represent the interests of McCourt rather than those of the team.