"Law360, Wilmington (July 12, 2011) -- A Delaware bankruptcy court on Tuesday granted Major League Baseball limited discovery from the hedge fund that loaned $60 million to the Los Angeles Dodgers as the league attempts to supplant the loan with an MLB-sponsored financing package.
U.S. Bankruptcy Judge Kevin Gross granted MLB a deposition and limited document production from Highbridge Principal Strategies LLC, a JP Morgan-affiliated hedge fund, but constrained the discovery only to the terms of the debtor-in-possession loan itself, which would be worth $150 million upon final approval.
The judge ruled out much of what the league requested in its subpoena of the hedge fund, including Highbridge’s internal analysis of the loan, its take on the debtors’ decision-making process and information on milestone provisions that have since been removed from the DIP agreement
“Debtor-in-possession financing is very sensitive business — we don’t want to unduly burden parties that are prepared to make financing available to debtors, for fear that financing will be less available or more expensive,” the judge said.
According to a letter filed with the court Friday, MLB is particularly interested in information that Highbridge may have on a previously undisclosed $5.25 million fee that Dodgers owner Frank McCourt is believed to have paid to the hedge fund on top of a $4.5 million deferred commitment fee as part of the DIP facility.
The league contends its rival loan is clearly superior due to its lower interest rate and the absence of any fees, and further argues that McCourt’s personal payment of the allegedly undisclosed fee creates a conflict of interest for the owner.
The Dodgers counter that the MLB loan is strictly an attempt by the league to gain leverage in the case and realize its ultimate goal of wresting control of the Dodgers from McCourt.
Gary L. Kaplan of Fried Frank Harris Shriver & Jacobson LLP, an attorney for Highbridge, bristled at the suggestion that the second fee was hidden from the court, arguing at the hearing that it was disclosed to MLB in negotiations at the first day hearing in the bankruptcy and that a letter detailing the agreement has since been produced.
“While it may continue to play well in the media, the issue of the fees is a complete red herring,” the attorney said.
A hearing on the financing dispute is scheduled for July 20.
Last week, Judge Gross completely shot down a broad discovery request of MLB from the Dodgers seeking information on the league’s handling of the club’s financial troubles and MLB’s business dealings with other teams.
The team hoped to use the information to highlight the league’s unfair treatment of the club and bolster its position that MLB is not a suitable DIP lender, but the judge found the requested information was irrelevant to the financing dispute.
The Dodgers’ finances — and McCourt’s stewardship of the franchise — have come under scrutiny from MLB since the owner fired his wife, Jamie McCourt, as CEO of the Dodgers the day she filed for divorce in October 2009. Jamie McCourt is seeking 50 percent ownership of the Dodgers in divorce proceedings.
MLB alleges in court papers that the divorce brought to light the owner’s mismanagement of the club, revealing that the McCourts had siphoned more than $100 million from the Dodgers to fund their lavish lifestyle.
The Dodgers are represented by Bruce Bennett and Sidney P. Levinson of Dewey & LeBoeuf LLP as well as Robert S. Brady of Young Conaway Stargatt & Taylor LLP.
MLB is represented by Jeffrey M. Schlerf of Fox Rothschild LLP, by Bradley I. Ruskin and Jeffrey W. Levitan of Proskauer Rose LLP, and by Thomas E. Lauria and Glenn M. Kurtz of White & Case LLP.
Highbridge is represented by Gary L. Kaplan of Fried Frank Harris Shriver & Jacobson LLP.
The case is In re: Los Angeles Dodgers LLC et al., case number 1:11-bk-12010, in the U.S. Bankruptcy Court for the District of Delaware."
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