With Donald Sterling absent from the courtroom, Day 4 of the Sterling family trust hearing featured much less drama and far fewer barbs. Important legal developments nevertheless occurred and they’ll shape the remainder of the proceedings and the future of the Los Angeles Clippers. The hearing, which began on Monday, was expected to last only four days. It will need more time and Los Angeles County Superior Judge Michael Levanas scheduled the hearing to resume on July 21, with closing arguments set for July 28.
Impact of the hearing failing to finish on Steve Ballmer’s expiring deal with Shelly Sterling
An obvious problem caused by the hearing’s continuation is that Steve Ballmer’s agreement to purchase the Clippers for $2 billion is set to expire on July 15. The NBA’s Board of Governors is scheduled to vote on the Clippers sale on that same date. There will be no vote. Per his agreement with Shelly Sterling, Ballmer cannot close on the sale unless he obtains consent from Donald Sterling (not going to happen) or he receives an order from a court saying the sale is lawful. The earliest such an order can be received is now July 28, and Levanas will likely take several days following July 28 to render a decision. Realistically, if Ballmer and Shelly Sterling do receive the necessary court order, they will probably not get it until early August.
All is not lost for Ballmer and Shelly Sterling in finalizing a sale. SI.com has obtained a copy of the “binding term sheet” signed by Ballmer and Shelly Sterling on May 29. The term sheet makes clear that, so long as they are engaged in good faith efforts to finalize a deal, the July 15 closing date will automatically extend to August 15. A revised closing date of August 15 could be extended further, up to 360 days, at the discretion of Ballmer and contingent upon NBA approval.
Ballmer and Shelly Sterling wisely contracted to a flexible closing date, their ability to postpone resolution is constrained by the NBA’s limited tolerance of an unsettled Clippers’ ownership. The league has made clear that there must be a change in Clippers ownership before the start of the 2014-15 season. In that vein, the league has set a date of September 15 for any deal to be finalized. After then, the NBA intends to terminate the
Sterlings’ ownership of the team. The office of commissioner Adam Silver would then take over the team and auction it off.
Shelly Sterling describes her husband as erratic and emotional
Shelly Sterling returned to the stand on Thursday. She continued to allege that Donald Sterling increasingly exhibits mood swings and emotional outbursts, thereby acting in ways inconsistent with his duties as a trustee.
To illustrate her portrayal, Shelly Sterling claimed that her husband was initially pleased to learn that Ballmer had offered $2 billion to purchase the Clippers. Sterling, according to his wife, even remarked how proud he was of her to secure such a lucrative bid. The next day, however, Sterling “screamed and cursed” in opposition to Ballmer buying the team and pledged that he would not sell. As another illustration, Shelly Sterling testified that her husband is aggressively seeking damaging information about other NBA owners, such as missteps in their past. This is presumably because he would use such material in pretrial discovery in his $1 billion lawsuit against the NBA. Of course, opposition research is not unlawful, nor is it necessarily a sign of cognitive impairment. Still, Shelly Sterling’s anecdote could be seen as evidence of Donald Sterling’s alleged erratic behavior.
In one respect, Shelly Sterling offered testimony on Thursday that possibly supports her husband. In his testimony, Donald Sterling insisted that the NBA offered to lift the lifetime ban and $2.5 million fine if he agreed to sell the Clippers. The NBA and sources close to the NBA adamantly reject this account. Shelly Sterling, however, testified that Silver raised the possibility of reducing the ban to 1-3 years, depending on Donald Sterling’s conduct. This discrepancy could perhaps be explained by the difference between Donald Sterling claiming the ban would be lifted and Shelly Sterling claiming the ban would be reduced. Shelly Sterling also did not say that her husband — as he claims — was in touch with the NBA. Instead, she testified about her conversations with the league. Still, Shelly Sterling’s testimony makes the already remote chances of Donald Sterling facing perjury charges even more remote.
Shelly Sterling also took aggressive questions from Max Blecher, one of her husband’s lawyers, about her motivations behind ousting Donald Sterling from the trust. Shelly Sterling emphasized that her only interest is in her husband’s welfare, and not pocketing a sizable amount of money from Ballmer. This is a crucial exchange because if Levanas questions her motives, he is more likely to reason that she failed to follow the trust’s procedures or breached a fiduciary duty to the trust.
Did Shelly Sterling’s medical experts misstate Donald Sterling’s condition?
Donald Sterling’s testimony on Tuesday and Wednesday often consisted of angry remarks about NBA officials, Shelly Sterling’s lawyers and, in calling her a “pig,” Shelly Sterling herself. At first glance, his behavior seemed consistent with the opinions of his wife and those of neurologist
Platzer and psychiatrist James Edward Spar. They all insist that he suffers from some kind of cognitive impairment. Recall that in pretrial sworn statements,
Platzer determined Sterling exhibits “primary dementia of the Alzheimer’s type” while Spar concluded, “the overall picture [of Sterling’s mental health] is consistent with early Alzheimer’s disease, but could reflect other forms of brain disease.” The testimonies of
Platzer and Spar in this week’s hearing only corroborated their written assessments.
Platzer, in fact, seemed more certain of Sterling having Alzheimer’s, saying she believes he appears to be in the early stages of the disease. These medical conclusions are important because they were relied upon by Shelly Sterling in declaring her husband was incapacitated and thus no longer able to serve as a trustee.
Health care and sports litigator Alan Milstein, who teaches bioethics law at Temple University Beasley School of Law, told SI.com that he questions the Alzheimer’s diagnosis. “While Sterling may come off as arrogant, angry and vindictive, he certainly seems to have his wits about him,” Milstein said. Milstein contended Sterling’s age may play a factor in assessing whether he has Alzheimer’s. “Alzheimer's usually begins around 65 and, with 'early onset' even earlier. With people 80 and over, lapses in memory and cognizance are usually characterized as dementia.” Milstein criticized Shelly Sterling’s attorneys for overplaying their hand and predicted Donald Sterling will prevail in the hearing. “I cannot fathom why her experts are using the term Alzheimer's, a far more complicated diagnosis than dementia. But the bottom line is this: the court may conclude he is a racist, or a sexist or is just plain obnoxious, but it will probably conclude he has no trouble finding the words to say awful things or remembering who he has grudges against.”
Section 1310(b) of the California Probate Code could doom an appeal by Donald Sterling....
At the end Thursday’s hearing, Levanas signaled that there are three core issues for resolution. The first is whether Donald Sterling was lawfully removed as a trustee on May 29, 2014. This matter centers on whether Shelly Sterling followed the trust’s procedures and obtained two independent medical evaluations that Donald Sterling was incapacitated. The second issue is whether Donald Sterling lawfully revoked the trust on June 9, 2014, and if he did, determining the effects of the revocation. Even if Levanas reasons that Donald Sterling revoked the trust, he could still allow Shelly Sterling to finalize a deal with Ballmer. The deal, after all, was reached 10 days before Donald Sterling attempted to revoke the trust. Trusts, moreover, are typically not revoked immediately and instead feature a winding period of several weeks. Levanas could stipulate that while Donald Sterling revoked the trust, his wife took control of the trust and would be in charge of winding it down.
The third and most intriguing issue is whether Donald Sterling can effectively appeal an order by Levanas that would certify Shelly Sterling and Ballmer to close the deal. Levanas would only issue such an order if Shelly Sterling acted in accordance with the trust’s provisions and if Donald Sterling either failed to revoke the trust or revoked it without preventing Shelly Sterling from reaching a deal with Ballmer. Donald Sterling would undoubtedly appeal an order by Levanas that certifies the sale. Section 1310(b) of the California Probate Code, however, would be poised to greatly limit the value of an appeal. Here’s why: under 1310(b), Levanas would have the authority to allow Shelly Sterling and Ballmer to complete the sale of the Clippers “notwithstanding any appeal” by Donald Sterling. In other words, Donald Sterling would be unable to stop the sale of the Clippers through a successful appeal. He would only be entitled to money damages in that scenario. For Clippers players and fans, 1310(b) would mean game over for Donald Sterling’s ownership of the team and a new era under Ballmer.
Attorneys for Shelly Sterling have made the case that 1310(b) is essential under the NBA’s tight schedule for transfer of Clippers ownership. As noted above, the NBA will move to terminate the Sterlings’ ownership in the Clippers if no deal is struck by September 15. The team would then be sold through an auction process conducted by the NBA. Shelly Sterling’s attorneys insist that it would be impossible to close on the sale by September 15 if her husband seeks a full trial or appeal. In fact, they predict that an appeals process could last well into 2016, by which point the NBA would have long since seized the franchise and sold it. Shelly Sterling contends that the trust would be harmed if it lost ownership of the Clippers to the NBA. Today she testified that the Clippers would sell for “a lot less” if the NBA took the team and auctioned it off. She also claimed the trust has more than $500 million in loans due to banks.
...But Section 1310(b) will be hard for Shelly Sterling to establish
Not everyone is certain that 1310(b) will be interpreted by Levanas in the manner Shelly Sterling’s attorneys desire. Daniel Wallach, an appellate attorney with Becker & Poliakoff, P.A., told SI.com that Shelly Sterling would need to make a compelling showing to Levanas. Wallach stressed that the general rule in California is that probate court orders are automatically stayed (suspended) during an appeal. In other words, an appeal by Donald Sterling would normally stop his wife and Ballmer from completing a deal, perhaps until long after the NBA’s deadline expires and thereby becoming a moot issue. Sterling would appeal in order to force the NBA to terminate his ownership, thereby (in theory) increasing the damages he would allege in his lawsuit against the league.
1310(b) is an exception to the general rule. But it is one that is only granted by California courts when the person seeking it — here, Shelly Sterling — can show that “extraordinary circumstances” exist involving a risk of imminent injury or loss. Wallach questioned how Shelly Sterling will establish these circumstances. “It is not enough for Shelly to offer only speculation,” Wallach maintained. “Where is the imminent risk of injury or loss? That she can't sell to this particular purchaser for a specific amount? The asset will only increase in value with the passage of time, if steadily rising NBA franchise values are any indication. She is not forfeiting the franchise, only the opportunity to sell to this particular bidder in a rushed process. No evidence has been adduced that the franchise would sell for less at a later date.”
Michael McCann is a Massachusetts attorney and the founding director of the Sports and Entertainment Law Institute at the University of New Hampshire School of Law. He is also the distinguished visiting Hall of Fame Professor of Law at Mississippi College School of Law.