AJC Article on the Hawks Ownership-Worth Reading

[WraithSentinel]

HAWKS / THRASHERS

Atlanta Spirit torn apart

Judge gives Belkin 30 days for buyout, but quick end unlikely

Published on: 06/14/06

The Maryland judge who last week ruled that Steve Belkin has the right to buy out his partners in the Hawks' and Thrashers' ownership group issued an amended order Tuesday that said Belkin is entitled to do so within 30 days.

In last week's order, the judge had left out, apparently inadvertently, the timeframe.

The amended order does not necessarily mean, however, that Belkin will take over the teams within a month. The other owners — a group led by Bruce Levenson, Ed Peskowitz, Michael Gearon Jr. and Rutherford Seydel — have said they will appeal the decision, and that likely would lead to a stay of the order.

Suffice to say, questions still permeate the case.

Q: What happens next?

A: The owners on the losing side of the Montgomery County (Md.) Circuit Court decision have 30 days to file notice of intent to appeal to Maryland's Court of Special Appeals. Eventually, both sides would file briefs, oral arguments would be heard, and the court would consider whether Circuit Court Judge Eric Johnson committed legal error. The appeals court could reverse or modify the ruling and could send the case back to Johnson for further proceedings. Or it could uphold his ruling.

Q: So how long would all of that take?

A: Probably six to 12 months.

Q: And who would own and run the teams during the appeals process?

A: After filing notice of appeal, the owners other than Belkin would ask the circuit court to stay last week's ruling, in effect maintaining the status quo within the ownership group during the appeals process. Such stays are routinely granted, lawyers say, but the judge could require that the other owners post a bond to protect Belkin against any decline in the value of the franchises during appeals.

Q: If the Court of Special Appeals upholds the ruling, is the case over?

A: Not necessarily. The decision could be appealed further to Maryland's highest court, the Court of Appeals, which would have the option of hearing or not hearing the case.

Q: Even though a court has ruled that Belkin's partners breached their agreement to buy him out and that he now is entitled to buy them out at cost instead, the NBA and NHL constitutions say a team can't change owners without league approval. Would that apply in this case?

A: Yes, a purchase by Belkin of his partners' stakes would require the approval of 75 percent of each league's board of governors.

Q: And what would happen if last week's ruling is upheld by the appeals court but one or both of the leagues don't approve Belkin as sole owner?

A: Sounds like more litigation.

Q: The court said Belkin is entitled to buy the other owners' stakes for their "aggregate contributed capital," or cost. How much would that be?

A: $31.4 million as of Jan. 25, according to an affidavit filed then by Levenson. The amount might have increased because of subsequent capital contributions.

Q: Didn't an appraiser put the value of Belkin's 30 percent stake at about $140 million?

A: Yes, that was the value put on Belkin's stake by JP Morgan Securities in a December appraisal. A November appraisal by CitiGroup put the value at $88 million.

Q: So . . . because the other owners didn't pay Belkin as much as $140 million for his one-third stake . . . they could be required to sell their two-thirds stake to him for as little as $31.4 million?

A: Yes.

Q: How could that be?

A: In last summer's purchase-and-sale agreement under which Belkin was to have been bought out, the other owners agreed to pay him "fair market value" for his stake as determined by a series of up to three appraisals. But the agreement also said that if the other owners failed to complete the buyout, Belkin instead could buy them out for "aggregate contributed capital." The judge ruled last week that the other owners breached the agreement when they "failed and refused" to participate in the joint engagement of a third appraiser and that they "failed to perform" their obligation to buy out Belkin, triggering his right to buy them out. "Judicially sanctioned theft," the other owners called it in an earlier court filing.

Q: What would be the grounds for an appeal?

A: The owners on the losing side of the circuit court decision haven't said anything about their appeals strategy beyond calling Friday's ruling "wrong, both on the law and on the facts." One crucial issue before the court was who had the right to retain the second appraiser in the buyout process. Last summer's agreement said either party objecting to the results of the first appraisal had the right to retain the second appraiser — but did not stipulate what would happen if both sides objected to the first appraisal, as they did. The judge ruled that since Belkin objected first — one minute after the appraisal was received — he had the right to hire the second appraiser despite having retained the first. The other owners argued that the purchase-and-sale agreement did not contemplate any such "race to object." They also had sought to more fully explore numerous issues, including the fairness and accuracy of the appraisals, before the court decided the case. The judge wrote in last week's ruling: "Should defendants truly feel that the valuations . . . fail to comport with the terms of the [purchase-and-sale agreement], then defendants are free to pursue a cause of action against the entities who actually performed the valuations."

[gsuteke]

what really bothers me here is it's a Maryland judge making a ruling on this case.

[mudderfudder77]

Did the Atlanta Spirit establish their LLC in Maryland?

[Nicholasp27]

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The judge ruled last week that the other owners breached the agreement when they "failed and refused" to participate in the joint engagement of a third appraiser and that they "failed to perform" their obligation to buy out Belkin, triggering his right to buy them out.

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this sounds bad...

they didn't participate in choosing the 3rd appraiser, so they may have slowed the process down themselves, instead of only belkin halting the process

if so, it could be grounds for belkin winning the appeal...

[chillzatl]

it would sound that way until you read further. That belkin objected to the first appraisal and there was no stipulations in the contracts to cover much of what took place after that point.

I would gather that their basic arguement is that since there were so many things that took place that were outside the framework of the contract, the time stipulations were null and void. While they mentioned that it was in fact Belkin who objected to teh first appraisal, they did not say who objected to the 2nd. If that was Belkin as well, then I see no reason why the above line of thinking would not be valid. Because the contract did not plan for either party to object to both the first and second appraisals.

[Diesel]

That Belkin doesn't have the money to buy the Hawks as a sole owner. That is something that Stern won't allow happen. Therefore, I think that Belkin has these 30 days to find some people who will go in with him.

I think that's to the rest of AS's advantage. I mean, the stories of how Belkin backstabbed the rest of his partners are out there. Even if Belk has friends, I don't think that they'd go in with him for fear that he might try to screw them too.

Without the added investors (and I'm sure that Belkin is not going to liquify his TA business to get the deal done), What I see is that Belk will have to go back to the buyout. This is how Stern will weild his power. He won't let Belkin buy the Hawks without other investors... Knowing that Belkin probably can't find any.

But Belkin is going to be difficult the whole way. He can't afford the team outright. He agreed to sell. Now he just wants to make every moment difficult.

Interesting that this is who Hawksfanatic wants as Owner??

[Diesel]

The Maryland Judge basically give Belk the keys to the Kingdom for holding up the process??

Logically, that doesn't make sense.

[frosgrim]

You have to wonder, if Belkin doesn't have enough money, and there is only a 30 window, will the AS hold off on putting in the appeal to essentially close the window on Belkin. How long does the AS have to submit an appeal? If its longer than 30 days, then they can gamble and try to win through the back door. Plus, if Stern has to agree to the buyout, the rug is effectively pulled out from under Belkin. Thus, an appeal that take a year or more may not have to happen.

Anyone with more legal knowledge can you help on this?

[DJlaysitup]

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...I think that's to the rest of AS's advantage. I mean, the stories of how Belkin backstabbed the rest of his partners are out there...

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Yeah D, but there are 2 sides to every story and nobody ever thinks they are the bad guy.

My guess would be Belkin feels he was backstabbed by the fact that he was made Guv. and given the authority to approve transactions. Then he approves a max. move for JJ initially - then they come back and want to add Diaw and two 1st rounders and he decides it's time to use his position to keep a bunch of "buy at all costs" rookies from making a bad deal - then they fire him and make the deal anyway. His personal stake in the team was higher than any other individual owner - yet they ran over him.

He probably figures that his way was the right way and the other all got together and conspired to backstab him. (just my guess)

[AHF]

To play devil's advocate:

How did Belkin hold up the process?

From his perspective, he objected to the first appraisal and was ready to move to the next step one minute after the first appraisal came in. How could he have moved more quickly? The only reason things got "held up" where because the other owners unlawfully tried to stop him from getting the second appraisal. Belkin only sued to enforce this right and he won on this point.

After the second appraisal came, I suspect he also acted quickly with similar premeditation. Assuming that was the case, how is the delay his fault?

[chillzatl]

Knowing what we know, yes. But it's not as simple as that. His job was to look at the contract and rule on whether or not AS failed to meet the contractual deadline. I don't think it was a situation where arguments were presented or allowed. I think most any judge would have sided with Belkin based on the wording of the contract.

The appeals process is where AS's lawyers will get to explain their side of it and explain why they felt that they didn't have to meet the deadline. Because Belkin nullified it by not accepting either of the two appraisals, which is all that was stipulated in the contract.

[AHF]

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Knowing what we know, yes. But it's not as simple as that. His job was to look at the contract and rule on whether or not AS failed to meet the contractual deadline. I don't think it was a situation where arguments were presented or allowed. I think most any judge would have sided with Belkin based on the wording of the contract.

The appeals process is where AS's lawyers will get to explain their side of it and explain why they felt that they didn't have to meet the deadline. Because Belkin nullified it by not accepting either of the two appraisals, which is all that was stipulated in the contract.

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No - if the argument wasn't made to the judge in the case below they can't raise it for the first time on appeal. The AS must have already made these arguments and had them rejected to raise them on appeal.

[Final_quest]

I'm curious for people to share what they feel is the best possible outcome for this.

I definitely don't want Belkin in charge, that is worst case scenario. Part of me wants a new ownership group brought in if Belkin gets voted out by the NBA governors.

To me the best case is the remaining AS partners to get their franchise back in as short of time as possible. I know they have made a great many mistakes, which is sometimes a sign that more serious mistakes are inevitable. Still, I feel like they could be on a path to make the Hawks into something special, despite the messes they have had to deal with. I'm more prepared to deal with the devils I know rather than the unknown. They have showed a lot of restraint and maturity in the kind of moves they have made. The basic philosophy has been to build slowly with young players, and without signing mediocre players to overpriced contracts.

Since I agree with their philosophy, in general, I don't see why I would prefer to get another group in. Quite honestly, I don't want to have to go through another rebuilding process with new faces. I feel that if we don't see significant progress next season, the AS will bring in a new GM and coach to improve the situation.

[chillzatl]

thanks for the clarification. So the judge heard their reasoning and disagreed with it? interesting.

[AHF]

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thanks for the clarification. So the judge heard their reasoning and disagreed with it? interesting.

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Yeah, he would have had to have heard these arguments already for them to be raised on appeal.

[Packfill]

The reason why Belkin's objection to the first proposal was an issue for the other owners is the fact that Belkin choose the first appraiser. The contract should have been drafted to provide only the party that does not pick the appraiser the right to object.

Belkin essentially gamed the situation. He picked the first appraiser and then immediately objected so that he could also pick the second appraiser. He tried to control the whole process.

This is obviously (at least one would hope) contrary to the spirit of the deal that was struck (presumably that each side would have a chance to pick an appraiser). The real issue is whether this is contrary to the letter of the actual contract. Courts always look to resolve a contractual dispute by first looking within the "four corners" of the agreement. If the answer is not there, then they can look at course of dealing, customary practices in the industry, etc.

[AHF]

I agree with what you said but it is obvious by now that the contract does entitle Belkin to object to his own appraisal - poorly drafted yes, but well within the four corners of the documents. As I see it, the only possible ambiguity is whether the first person to object has priority or whether it is ambiguous where both parties object within the time frame permitted for objections.

[Yeti]

Best possible outcome?

The franchise needs to get this behind it quickly and focus on the team. Officially this may not be a factor, but you know it has to be a big distractor for everyone. What a damn mess. Stern should tell Belkin to get this resolved quickly or he'll advise against any future ownership of a team that includes Belkin. If this goes another six months, the franchise may not survive. Even the few Hawk diehards are getting discouraged and dropping their tickets. Damn Lawyers.

[Final_quest]

From the article it sounded like 6 months is the minimum before this is resolved. Basically next season we'll be in limbo the whole time.

[DJlaysitup]

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I agree with what you said but it is obvious by now that the contract does entitle Belkin to object to his own appraisal..

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Sounds like a good Monty Python skit (read with a British accent).

"Yes sir you would like a contract right?"

Belkin: "Yes I would, a nice one (smiling)"

"and you would like to do your own appraisal right?"

Belikin: "Yes, that's correct"

"Okay fine...and that appraisal will be fine with you then right?"

Belkin: "Well I may object to it"

"You may object to you own appraisal..Hmmm...Okay fine. And if you do object the deal is off right?"

Belikin: "Well, I'd like to get the team anyway"

"Hmmmmmm...you drive a hard bargain but....Okay fine"