- Lester Munson, Legal Analyst
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What's the longest four-letter word in the legal world? (Courtside Seat is taking a very big risk by using this word on a family website, so we're only going to whisper it.) It's malpractice. (Ssssshhhhh! If any of your young children ask what it really means, tell them it's what the Dodgers did instead of actually practicing during their fade from the pennant race this summer.) This week, that bad word comes along with some other juicy, salacious sports-law lingo. Like larceny. And insider trading. Today, we start with
After 11 months of pre-trial bickering, 12 days of trial and $20 million in legal fees, there is still no end in sight to the McCourt divorce and the battle over ownership of the Los Angeles Dodgers. The only certainty is more litigation, including the probability of a potentially colossal legal malpractice claim against the lawyers who wrote the agreement that is the centerpiece of the ownership dispute.
Commissioner Scott Gordon listened to the lawyers' final arguments on Wednesday, and is now deliberating a decision that could either award the Dodgers to Frank McCourt or force the sale of the team. But whatever decision Gordon makes no doubt will be taken to a higher court in an appeal that will take at least another year.
It's hard to imagine why the McCourts prefer the cost and uncertainty of litigation to a settlement that could allow their fragmented family (they have four sons ranging in age from 20 to 28) to keep one of sport's greatest franchises.
They paid only $430 million when they bought the team from Rupert Murdoch's News Corp. in January of 2004, and it may have doubled in value already. It seems that the increase in value and some creative refinancing ought to produce a settlement; but according to the Los Angeles Times, Frank and his wife, Jamie, were "$300 million apart" even after a lengthy mediation attempt last weekend.
That's a sizeable gap, but it isn't insurmountable. The McCourts made their fortune developing parking lots in Boston with a combination of cutthroat litigation and imaginative borrowing, skills that should help them find a way to settle the issues in the divorce and the ownership of the Dodgers.
If they cannot settle while Commissioner Gordon is deliberating his decision, the next steps will be for the appeal and the legal malpractice claim.
The target of the malpractice lawsuit will be Larry Silverstein and Bingham McCutchen, a national law firm with offices in Boston and Los Angeles.
As the McCourts were buying the Dodgers and preparing to move to Los Angeles, Silverstein wrote a marital property agreement (MPA) that might or might not have given the Dodgers to Frank as his sole property.
In the course of preparing the agreement, Silverstein represented Frank, Jamie and the Dodgers; and even a first-year law student should recoil at the conflicts in that arrangement. During the divorce trial, Silverstein spent a miserable week in depositions and on the witness stand trying to explain the inexplicable.
In addition to the conflicts of interest, Silverstein managed somehow to mix up the words "exclusive" and "inclusive" in the language of the MPA.
In a surprisingly clumsy attempt to list the assets that the MPA was giving to Frank, Silverstein wrote that all family assets currently in Frank's name "inclusive" of the Dodgers would remain Frank's property. If Silverstein had submitted that sentence and the listing in a "pass" or "fail" law school writing class, he would have failed.
Then, in an even more stunning blunder, he wrote another version of the agreement that used the word "exclusive" instead of "inclusive," taking the Dodgers away from Frank and leaving them as the property of both Frank and Jamie. Much of the 12 days of trial was devoted to dissecting and parsing Silverstein's erroneous draftsmanship.
In his testimony at the trial, Silverstein admitted that he never told Frank and Jamie of his blunder, even though he was supposed to be representing both of them. He also admitted that the ethics committee at his own firm was critical of his work. Whether Commissioner Gordon rules for Frank or for Jamie, the loser will be looking hard at Silverstein and his law firm.
It won't be the first time that a sports figure has caught a lawyer in this predicament. When Mike Tyson was released from the Indiana penitentiary after serving three years for rape, the law firm of Sidley & Austin wrote a contract for Tyson, promoter Don King and managers John Horne and Rory Holloway. Like Silverstein, the Sidley lawyers tried to represent all three conflicting interests.
When the relationship between Tyson and King fell apart, Tyson sued Sidley & Austin, accusing the firm of failing to protect his interests against the interests of King and the managers.
Caught in a trap of their own making, the Sidley lawyers quickly settled in May of 2000, paying Tyson $17 million to drop the case. The settlement came without any of the usual pre-trial discovery (depositions and exchange of documents) as the lawyers recognized that things were going to get worse than $17 million under any close scrutiny of their work.
Commissioner Gordon has three months to make his decision on the ownership of the Dodgers. It would be a great thing for Dodgers fans if Frank and Jamie used that time to work on a settlement. If they're looking for some money to help in the settlement, they could consider their claim against attorney Silverstein. If they file it and settle it quickly, as in the Tyson case, it could be enough to seal a deal.
Thieves like us
There's petty larceny.
There's grand larceny.
And every now and then, there's glorious larceny.
For Jay Vincent, a foolproof scam that would produce riches and a life of leisure was supposed to be the glorious form of larceny.
But rather than the perfect crime, Vincent's scheme became an embarrassment, a daily grind of endless office work and, after a guilty plea entered Tuesday, a guarantee of three to 10 years in a federal penitentiary.
It began in 2006. According to the federal indictment and other court papers, Vincent, who played with Magic Johnson on the 1979 Michigan State team that won the NCAA championship and then played nine years in the NBA with Dallas, Denver, the Lakers, San Anonio, Philadelphia and Washington, and a partner started a business they called the Foreclosure Bank Inspection Co.
In its ads in newspapers and on the Internet, the company offered training and employment as "inspectors of foreclosed homes." In return for small fees, the company would test the applicants, do a background check and provide liability insurance.
When people throughout the U.S. began to respond to the company's advertising, it became a lot of work for Vincent, now 51, and his partner-in-crime, 53-year-old Anthony Portee.
This was no glamour, no joy, no fun. This was not a sting that would ever become a major motion picture. Neither Will Smith nor Denzel Washington will be asking Vincent and Portee for the rights to their stories.
The scam required day after day of office drudgery -- purchasing ads, answering innumerable e-mails, responding to stacks of snail mail, mailing out thousands of applications and tests, processing credit card payments and depositing checks.
Between 2006 and 2009, federal prosecutors say, Vincent and Portee managed to persuade more than 20,000 people that they ran a legitimate business.
But it was bogus from day one. The contracts with big banks that were featured in the company's ads were counterfeit. The checks paying the company for inspections of foreclosed homes were counterfeit. The tests completed by the applicants were never graded; instead, they were dumped in boxes in the office. The insurance policies they sold did not exist. And the background checks were pure fiction.
Vincent, Portee and their telephone operators did not even ask the applicants for their Social Security account numbers or their birth dates as they began the supposed background checks.
They charged their applicants $149 for the nonexistent insurance. They charged $89 for a background check. Federal prosecutors say they collected a total of $2 million from their hapless customers, an average of $100 per applicant. Vincent and Portee spent countless hours processing these payments.
Looking back at the scam and the efforts that went into it, two questions arise.
First: What made them think it would work? When 20,000 people are paying for things they never receive, it isn't long before someone complains to the Better Business Bureau or the police. Did Vincent and Portee think each and every one of their customers would simply walk away without trying to get what they paid for?
Second: If Vincent and Portee were willing to work so hard and so long, processing so much mail and so much money, wouldn't it have been better to do it in an honest business? If they'd invested the same creativity, the same energy and the same time in a legitimate enterprise, they probably would have done well.
This was not a get-rich-quick scheme. This was a get-caught-slow scheme. Vincent and Portee worked at this for nearly three years. Even after the FBI raided their offices in Lansing, Mich., and grabbed their laptops and their records, they persisted in claiming they were performing a genuine service for their customers.
The consequences for Vincent are overwhelming. In addition to the time in the penitentiary, he has agreed to make restitution of $2 million to his customers and faces an income tax liability of more than $300,000 when the IRS adds fraud and negligence penalties and interest to the $110,000 he admits that he owes.
Why would someone like Vincent, who has enjoyed success, fame and occasional wealth, try something like this? Investigators and agents, when they look at a scam like this one, do not talk about glorious larceny. They say, instead, "Crime makes 'em dumb."
Even after a defeat in the nation's second highest court, Mark Cuban remains righteous and indignant about what the Securities and Exchange Commission is doing to him.
His attacks on NBA referees are benign when compared to his antagonism for the SEC investigators who accuse him of violating the rules against insider trading.
In a statement issued by his lawyers, Cuban says the folks at the SEC had a "pre-existing bias" against him and that they are guilty of "bad faith in bringing an utterly meritless case against him."
But what Cuban calls "meritless" looks a lot like a classic story of insider trading. Here's what the SEC says happened: The CEO of a small Internet search company phoned Cuban, the company's largest shareholder, and told him about a new stock offering that would reduce the value of Cuban's share. Cuban told the CEO that he wasn't happy but that he realized the rules of stock trading prevented him from selling his shares to avoid the loss.
Relying on the private information from inside the company, Cuban then ignored his own pledge and proceeded to sell his stake in the company, according to the SEC. His quick sale saved him from a loss of $750,000 when the stock price dropped over the next few days.
It's an insider trading case that many investors would immediately settle to avoid legal expenses and continuing embarrassment. Not Cuban. He has hired a team of the nation's ranking securities lawyers, and he is fighting the SEC. One of the lawyers, Christopher J. Clark, says that they "are supremely confident that we will prevail."
Cuban and his legal team did prevail early in the case when they asked U.S. District Judge Sidney A. Fitzwater for a dismissal. Although Fitzwater ignored the arguments offered by Cuban's lawyers, he dismissed the case with an opinion that theorized that Cuban had not affirmatively promised not to use the inside information. The SEC appealed that surprise ruling; and the higher court agreed with the SEC, ruling in a 13-page unanimous opinion last week that the SEC attorneys had described what appears to be insider trading. They instructed a federal judge in Dallas to prepare the case for trial.
This will be fun. The SEC has powerful evidence. Cuban's lawyers are the best in the business. And no one does righteous indignation better than Cuban.
Lester Munson, a Chicago lawyer and journalist who reports on investigative and legal issues in the sports industry, is a senior writer for ESPN.com.
2hBy Dan Graziano