Judge rules against Donald Sterling, OK's sale of Clippers to Steve Ballmer
One of the strangest legal sagas in the history of pro sports appears to be over. In a stunningly decisive order, Los Angeles County Superior Court Judge Michael Levanas has ruled that Shelly Sterling lawfully reached an agreement to sell the Los Angeles Clippers to former Microsoft CEO Steve Ballmer for $2 billion. Of equal importance, Levanas invoked Section 1310(b) of the California Probate Code. By doing so, Levanas has permitted the Clippers sale to be completed irrespective of Donald Sterling appealing. The NBA will surely approve Ballmer as the next Clippers owner and will likely do so within weeks. Clippers employees, coaches, players and fans will have a new owner by the start of the 2014-15 season, and media attention of the team will soon return to where it belongs: basketball.
To be clear, Donald Sterling can appeal Levanas’ order and from that vantage point, the legal saga is not technically over. He can also continue to sue his wife, the NBA and commissioner Adam Silver in various lawsuits. Those endeavors, however, only offer him the possibility of money damages. To put it another way, Donald Sterling will soon lose ownership of the Clippers and he will not get the team back. Ever. Worse yet for Donald Sterling, his wife, on behalf of herself and the trust, has indemnified the NBA of legal expenses associated with him. The indemnification effectively means Donald Sterling would be paying himself any amount he may be awarded in money damages. Shelly Sterling, not a lawyer, has truly run legal circles around her lawyer husband.
Total victory for Shelly Sterling
In ruling for Shelly Sterling, Levanas left no room for doubt that he categorically rejected Donald Sterling’s legal theories and witness testimony. Levanas described Shelly Sterling as “far and away more credible” on the stand than her husband. He also rejected Donald Sterling’s attempts to undermine the two physicians, neurologist Meril Platzer and psychiatrist James Edward Spar, who diagnosed Donald Sterling as incapacitated. Levanas similarly found no reason to believe that Donald Sterling lawfully revoked the trust on June 9. He also regarded sports business consultant Dean Bonham, who testified that Ballmer’s $2 billion offer for the Clippers was below market value, as wholly unpersuasive.
Somewhat surprisingly, Levanas invoked Section 1310(b), which permits Shelly Sterling and Steve Ballmer to complete their deal while Donald Sterling appeals. By law, 1310(b) is reserved only for “extraordinary circumstances,” as the default effect of an appeal would be to prevent completion of the Ballmer deal until after an appeal—a process that could take months. In a previous SI.com article, 1310(b) was studied closely, as was its case precedent. Daniel Wallach, an appellate attorney with Becker & Poliakoff, P.A. who has closely studied 1310(b), notes that the California Supreme Court has ruled that 1310(b) only applies in “rare cases.”
Despite the long odds, Shelly Sterling convinced Levanas that her situation evidenced the requisite extraordinary circumstances. Levanas concurred with her that the trust might suffer substantial harm if the sale to Ballmer is not finalized by September 15, 2014. At that point, the NBA would commence termination proceedings against the Clippers ownership. Termination would require support of at least 22 of the 29 owners and would lead to the NBA auctioning the team to new owners. Donald Sterling’s attorneys argued the team would be worth more to potential buyers if sold directly by the NBA, as Shelly Sterling -- and more broadly the Sterling family name -- would no longer be attached to the franchise. In her agreement with Ballmer, Shelly Sterling is set to be named “Owner Emeritus” and “Clippers’ Number One Fan” while also presiding over a $100 million team charity. Levanas, however, was not persuaded by Donald Sterling’s economic argument and instead seemed convinced Ballmer's $2 billion offer was exceptionally good for the trust. Shelly Sterling also presented evidence that the trust owes $480 million and those debts would be discharged through proceeds from sale of the team.
Levans also endorsed concerns raised by Clippers interim CEO Dick Parsons that Sterling’s continued relationship with the team would cause a “death spiral” in terms of relations with players, fans and sponsors. It is worth noting comments made by Chris Paul and Matt Barnes over the last few days to media, including to SI’s Chris Mannix, about Clippers players boycotting. Those comments corroborated Shelly Sterling’s contention that her husband’s continued relationship with the Clippers would damage the trust.
From the standpoint of NBA fans, the Sterling saga is effectively over. The NBA will approve Ballmer and he will become the new Clippers owner.
From the standpoint of the court system, the Sterling legal saga is far from over. He has filed billion dollar lawsuits against his wife, the NBA and Silver and those lawsuits may take years to play out. But Donald Sterling will litigate as a mere former NBA owner. He also remains banned from any NBA activities.
Sterling could still seek an injunction to block the sale, but keep in mind injunctions are extraordinary measures and seldom granted by judges. Sterling would need to establish that he has a substantial likelihood of succeeding on the merits--an argument made more difficult by Levanas' findings. The NBA also possesses persuasive legal arguments against Sterling. These are mainly centered on the fact that Sterling contractually agreed to the NBA's procedures used to discipline him. The NBA and Shelly Sterling would also contend that an injunction would harm the league and the trust more than it helps Donald Sterling given, among other points, the franchise "death spiral" described by Parsons on the stand. Sterling would also need to convince a judge that losing the Clippers constitutes an irreparable harm. While it is true that he would never again obtain an NBA team, judges are usually unwilling to classify loses in assets as "irreparable" when a dollar amount--or in the case of the Clippers, a $2 billion amount--can compensate.
Lastly, while today dealt discouraging legal news to Donald Sterling, he still "wins" by an normal economic measure. According to calculations by Robert Raiola, a senior manager in the Sports & Entertainment Group of the accounting firm O'Connor Davies, LLP, approximately $662 million of the $2 billion received by the Sterlings for the Clippers will be paid to the I.R.S. and California Franchise Tax Board in capital gains taxes. The remaining $1.38 billion projects to go to the Sterlings, although they will likely have considerable legal expenses and other bills to pay. These calculations, Raiola stresses, assume that the Sterlings' own the original ownership interest in the Clippers and that this ownership interest has not been transferred through an estate strategy.
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.