LA Dodgers Owner’s Post-Nuptial Strikes Out In Court

Frank McCourt and Jamie Luskin met in 1971, while both were freshman at Georgetown University.  During their courtship, Jamie went on to earn a law degree from University of Maryland, and an MBA from MIT.  The couple finally married in 1979.  Over the course of the next thirty years, the McCourts pursued and invested in a variety of high-risk ventures, at times enjoying extravagant wealth.  In more trying times, however, the McCourts found themselves on the brink of financial ruin.

In 2004, through an entirely debt-driven transaction, the McCourts were able to purchase the Los Angeles Dodgers, in sale worth between 355-430 million.

Wary of lessons learned during harder times, as the McCourts prepared for the move to California, they drafted a Marital Property Agreement, in an attempt to ensure that their residential real estate holdings would be protected from creditors, should the investment hit a prolonged slump.

Since that time, the team’s value has increased significantly.  Forbes estimated the team’s 2010 value at 727 million.  Yet despite the team’s financial success, it seemed the McCourt’s marriage had struck out.  The parties separated in early October 2009.  Later that month, after Frank terminated Jamie from her CEO post, she filed for divorce in Los Angeles Superior Court.

Intense litigation ensued and continues to this day.  Developments in the pending case are closely watched by the media, Tommy Lasorda, Vin Scully, and throngs of Dodgers fans.  Are these onlookers simply fascinated with high-profile divorce?  Are they deeply invested in the wellbeing of Frank and Jamie?  Hardly.  All the hubbub can be attributed to a drafting error in the Marital Property Agreement, which leaves ownership of the Los Angeles Dodgers hanging in the balance.

Both parties signed six copies of the MPA.  A section of the MPA sets out a list of assets.   Three copies of the MPA characterized the holdings of Frank McCourt as “inclusive” of assets on the list.  Three copies of the MPA characterized the holdings of Frank McCourt as “exclusive” of those assets on the list.  It should be clear by now that the L.A. Dodgers are on this list.  The rub is that the use of the term “inclusive” would make Frank McCourt the sole owner of the Los Angeles Dodgers, while the use of the term “exclusive” would make Jamie McCourt a co-owner of the franchise.  Without a controlling agreement to the contrary, ownership interest in the team would be determined by California’s method of equitable division: community property law.  Because the team was acquired during the marriage, community property law dictates that Jamie would own a half interest in the franchise as it currently exists.

The parties recently asked the presiding Judge in the divorce case to rule on the validity of the MPA, with Frank urging the Court to uphold the Agreement, and Jaime asking the Court to invalidate it.  Frank’s best argument would have been to present evidence showing the parties had clearly intended and acted as if the MPA listed assets included in Frank’s interests, and the “exclusive” term on three copies was simply an uncorrected clerical error (the attorney who drafted the agreement admitted to the proverbial whiff).

Here comes the curveball:  A California statute specifically addressing marital agreements states the Judge is only allowed to consider what is contained within the four corners of the document, meaning no extrinsic evidence is allowed, even that of intent.

Faced with two completely conflicting versions of the MPA, differentiated only by two letters, the Judge was unable to determine which version should control without looking at extrinsic evidence.  As such, he found there was no meeting of the minds in the execution of the Agreement, and had no choice but eject it from the game.

In his Order, the judge noted that “the parties argued at great length and presented a great deal of evidence with regard to the credibility of the other.”   The judge threw a little chin music at the parties as he went on to say that he found neither party’s testimony credible.

Although we now know that Jamie McCourt has an interest in the L.A. Dodgers, final disposition of the assets is nowhere close to complete.  Attorneys for the parties say it will take at least a year to prepare for the next phase of the trial – characterizing the assets as either community property or separate.  Eventual division of the assets probably will not result in joint ownership of the team, but the judge could order one spouse to buy out the other.  Meanwhile, Frank McCourt has made a call to the bullpen – he’s also pursuing a sole ownership based on a claim that he purchased the Dodgers with money that can be traced from proceeds of a sale of an asset he owned prior to the marriage.