June 27, 2011 12:41 PM

Dewey Takes Lead on Dodgers Bankruptcy

Posted by Brian Baxter

UPDATES: 6/27/11, 5:50 p.m. The eleventh and twelfth paragraphs of this story have been updated with a statement from Major League Baseball commissioner Bud Selig. 6/28/11, 9:00 a.m. The National Law Journal, a sibling publication, has more information on the Dodgers's bankruptcy, including MLB's lawyers at White & Case.

The Los Angeles Dodgers, one of Major League Baseball's most historic franchises, filed for bankruptcy Monday in Delaware, listing assets of up to $1 billion against $500 million in liabilities.

The decision to enter Chapter 11 comes after an ongoing divorce battle between owners Frank and Jamie McCourt and a recent ruling by MLB commissioner Bud Selig rejecting a proposed $3 billion television contract for the team over the next 17 years.

"I simply cannot allow the commissioner to knowingly and intentionally be in a position to expose the Dodgers to financial risk any longer," said Frank McCourt in a statement Monday. "The Chapter 11 process provides the path on which to position the [Dodgers] for long-term success."

Dewey & LeBoeuf bankruptcy partner Bruce Bennett in L.A. is leading a team from the firm advising the Dodgers in their Chapter 11 case. Bennett, who already was appearing in a Delaware courtroom Monday to represent an ad hoc committee of creditors in the Tribune Company bankruptcy, is a veteran of many high-profile bankruptcy cases. He joined Dewey in February along with nine other lawyers from L.A. bankruptcy boutique Hennigan Bennett & Dorman (now called Hennigan Dorman).

MLB took over day-to-day operations of the Dodgers in late April. Selig placed Akin Gump Strauss Hauer & Feld senior counsel J. Thomas Schieffer in charge of the team given concerns about the team's finances and security at Dodger Stadium, where a fan of a rival team was assaulted after the club's home opener. (The victim's family, represented by L.A.'s Girardi Keese, sued the Dodgers in May.)

The bankruptcy proceedings could be a prelude to a sale of the Dodgers. A divorce settlement between Frank and Jamie McCourt agreed to earlier this month rested on Selig's approval of a TV contract with Fox that would have provided a much-needed infusion of capital into the struggling team. The Dodgers, which needed about $30 million to meet payroll by June 30 after lenders refused to increase the organization's debt limit, will now be able to access $150 million debtor-in-possession financing provided by JPMorgan Chase hedge fund unit Highbridge Principal Strategies.

According to a copy of the Dodgers's Chapter 11 filing, the team owes millions to current and former players such as Manny Ramirez ($21 million), Andruw Jones ($11.1 million), Hiroki Kuroda ($4.5 million), Rafael Furcal ($3.7 million), Ted Lilly ($3.4 million), Kaz Ishii ($3.3 million), and Marquis Grissom ($2.7 million).

Other creditors include legendary broadcaster Vin Scully ($152,778) and Covington & Burling ($73,397). A Covington spokeswoman told The Am Law Daily that the firm took the lead in negotiations with Fox on the proposed TV contract. Covington's sports practice is known for its expertise in negotiating lucrative TV deals.

The Dodgers will continue to operate in bankruptcy and all players's salaries will continue to be paid, as mandated by MLB's collective bargaining agreement. The team is the second MLB franchise to file for bankruptcy in as many years.

Selig took over the Texas Rangers last year after former owner Thomas Hicks defaulted on bank loans and fell out of compliance with MLB's debt rules. The Rangers were put into bankruptcy in May 2010 in order to speed a sale of the team, and after three months of, at time, contentious proceedings, the franchise was sold after an auction in August to a group led by Reed Smith counsel Charles Greenberg. (Greenberg left the ownership group in March after a rift with his partners.)

But unlike the Rangers case, Selig did not approve Frank McCourt's decision to bring the Dodgers to bankruptcy court. In a statement on the team's bankruptcy filing, Selig blamed McCourt for inflicting "further harm" on one of baseball's most venerable franchises.

"The Commissioner's Office has spent the better part of one year working with Mr. McCourt and his representatives on the financial situation of the Los Angeles Dodgers, which was caused by Mr. McCourt's excessive debt and his diversion of club assets for his own personal needs," Selig said. "We have consistently communicated to Mr. McCourt that any potential solution to his problems that contemplates mortgaging the future of the Dodgers franchise to the long-term detriment of the club, its loyal fans, and the game of baseball would not be acceptable."

Proskauer Rose has been advising Selig and MLB on an internal league investigation of the Dodgers's finances. Sullivan & Cromwell chairman Joseph Shenker and L.A. office managing partner Robert Sacks have been representing McCourt, who is also relying on a team of lawyers in his divorce case led by Susman Godfrey's Stephen Susman.

McCourt, who bought the Dodgers for $430 million from News Corporation in 2004, is already facing one major obstacle in retaining control of the team in bankruptcy court. Fox, an affiliate of News Corp., will reportedly not support him, should bankruptcy lawyers for the Dodgers ask a judge to force approval of the network's TV contract with the team that was nixed by MLB.

Robert Brady, a partner at Delaware's Young Conaway Stargatt & Taylor, is serving as local bankruptcy counsel to the Dodgers.

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