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Michael J. Kline writes:

Shortly before midnight last night Adam Rubin of ESPN reported that Madoff Trustee Irving Picard had filed court papers seeking approval of the settlement (the “Settlement”), which was reached on March 19, 2012 with numerous defendants, constituting the Wilpon-Katz-Mets individual, business, family trust and charitable interests (the “Wilpons”). A posting on this blog series earlier in the day had discussed prospects for the parties’ finalizing arrangements by the deadline set for yesterday.

The account by Rubin reflects the efforts made in the Trustee’s press release (the “Press Release”) to establish on a point-by-point basis that all of the required conditions for consummating the Settlement had been achieved to request final approval of Federal District Judge Jed S. Rakoff. Rubin’s posting states that the Trustee gave the following as his reasons for agreeing to the Settlement:

The Settlement Agreement represents a good faith, complete and final settlement between the two parties. It is a practical and fair compromise of complex litigation issues and avoids a protracted and expensive trial and lengthy appeals. The settlement is in the best interests of the BLMIS [Madoff bankruptcy] Customer Fund and the BLMIS customers with allowed claims – who were defrauded by the Madoff Ponzi scheme – who will ultimately receive distributions of recovered monies from the Customer Fund.

Rubin reports that a hearing for approval of the settlement before Judge Rakoff has been scheduled for Tuesday, May 15, 2012, at 4:00 p.m. Such approval appears to be the only condition for implementation of the Settlement. With all of the painstaking preparation that has gone into achieving the Settlement to this point, one would expect such approval to be primarily a formality.

There is, however, an open item for those who are interested in the legal reasoning and judicial thinking put forth by Judge Rakoff during the proceedings. An earlier blog posting in this series noted that Judge Rakoff had issued significant Orders on March 5 and March 14, 2012 (the "Orders") without accompanying Opinions. In rendering the Orders, Judge Rakoff had stated that an Opinion to explain the Orders would be forthcoming later. To date, the Judge has not yet published such an Opinion. Because the Orders may have played a pivotal role in leading to the Settlement by the litigants, such an Opinion would be helpful for future legal guidance on important issues.

(Michael J. Kline is the author of this entry and the author of an on-going analysis of the concerns of Madoff stakeholders. Mr. Kline is a partner with Fox Rothschild LLP, based in our Princeton, NJ office, and is a past Chair of the firm's Corporate Department. He concentrates his practice in the areas of corporate, securities, and health law, and frequently writes and speaks on topics such as corporate compliance, governance and business and nonprofit law and ethics.)

[To be continued in Installment 75]

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Michael J. Kline writes:

In a posting on March 19, this blog series reported that a settlement (the “Settlement”) was reached between Madoff Trustee Irving Picard (the "Trustee") and the numerous defendants, the Wilpon-Katz-Mets individual, business, family trust and charitable interests (the “Wilpons”). While the Memorandum of Understanding (the “Memorandum”) respecting the Settlement stated that it was a legally binding document, the Memorandum contained a number of conditions to finalizing the Settlement to be completed on or before Friday, the 13th of April, 2012. 

Although this matter has been relatively quiescent in the media since the Settlement, the parties have undoubtedly been working around the clock to meet the deadlines. There is a possibility that some of the conditions will not be resolved by April 13 as discussed below. The conditions required for the parties’ resolution by tomorrow under the Memorandum include the following:

1. The obligations of the Trustee Irving Picard in reaching the Settlement are subject to the approval of District Judge Jed S. Rakoff. (Presumably such approval cannot occur until all other conditions for the Settlement have been resolved.)

2. The approval of the Settlement by all required lenders to the Wilpons is to be obtained by the Wilpons. (Because it may be assumed that such lenders were part of the original process of entering into the Memorandum, this condition should be satisfied by the deadline.)

3. The parties to the Memorandum are to enter into definitive documentation reflecting the terms of the Settlement and “other terms customary for agreements of this type as expeditiously as reasonable possible, but in no event later than April 13, 2012.” If the parties cannot reach agreement on such definitive documentation by April 13, the Memorandum calls for differences to be resolved by binding arbitration to be conducted by a lawyer selected by former Governor Mario Cuomo. (This arbitration process contemplates potential delay of finalization of the Settlement and approval of Judge Rakoff but does not change the fact that the Settlement is said to be “binding on the parties.”)

4. The Memorandum provides that from March 19, 2012 to April 13, 2012, the Wilpons are to provide the Trustee with reasonable access to information that enables the Trustee to confirm the basis for the Settlement and the representations of the Wilpons. (Query: If the Settlement is not fully finalized by April 13, 2012, does the Trustee lose his right of “reasonable access to information” thereafter?  What if the Trustee cannot confirm the basis for the Settlement and the representations of the Wilpons?)

There still may be items of interest or surprise flowing from this case before (or even after) final approval is given by Judge Rakoff.

(Michael J. Kline is the author of this entry and the author of an on-going analysis of the concerns of Madoff stakeholders. Mr. Kline is a partner with Fox Rothschild LLP, based in our Princeton, NJ office, and is a past Chair of the firm's Corporate Department. He concentrates his practice in the areas of corporate, securities, and health law, and frequently writes and speaks on topics such as corporate compliance, governance and business and nonprofit law and ethics.)

[To be continued in Installment 74]

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Michael J. Kline writes:

Today, before the start of a jury trial and after months of intensive and often acrimonious exchanges of briefs and motions in court and posturing in the media, a settlement was reached between Madoff Trustee Irving Picard and the numerous defendants - the Wilpon-Katz-Mets individual, business, family trust and charitable interests (the “Wilpons”). While the agreed upon Memorandum of Understanding (the “Memorandum”) requires the Wilpons to pay $162 million (the “Settlement Payment”) to Picard, a closer review of the terms of the Memorandum reveals that the Wilpons appear to have negotiated a very favorable result, perhaps actually an outright victory, in their efforts to keep control of the Mets for reasons including the following:

1. Rather than the Wilpons’ risking a potentially distasteful and embarrassing public jury trial that could have resulted in an adverse judgment of more than $380 million, followed by an almost certain appeal, the Wilpons agreed to a Settlement Payment of “only” $79 million more than the $83 million judgment already outstanding in the case.

2. The Wilpons will pay no money toward the $162 million out of their own pockets for three years; the only payments during that period would come from potential recoveries for the Wilpons by Picard from the Wilpons’ collective claims as victims in the Madoff scheme(“Customer Claim Recoveries”) as victims in the Madoff scandal, aggregating an estimated $178 million.

3.  The Trustee agreed to a two-year installment payment plan for the Wilpons beyond the first three years for any remaining unpaid amounts on the Settlement Payment (less any additional Customer Claim Recoveries during such two-year period).

4. The fact that Picard is allowing the Wilpons to offset Customer Claim Recoveries against the Settlement Payment is a valuable and perhaps unexpected dividend that has established the Wilpons as stakeholders in the ultimate Picard recoveries and has likely converted the Wilpons into cheerleaders for future Picard successes.

5. The certainty that has been brought about by the Memorandum now quantifies the liability of the Wilpons and promotes their ability to sell minority interests in the Mets that have been so far delayed and postponed for many months.

6. The focus on the litigation and the accompanying expenses and angst will now be dissipated, and the Wilpons can concentrate on refinancing and rebuilding the Mets.

7. The personal guarantees of the Settlement Payment by Fred Wilpon and Saul Katz are limited to a total aggregate amount of up to $29 million.

8. Potential dissension and conflicting testimony at trial among the families, businesses, family trusts, charities and friends of the Wilpons has been avoided.

9. The risks and sensationalism of a jury trial have been avoided.

There are a number of contingencies in the Memorandum to be satisfied by April 13, 2012, including the receipt of required approvals to the terms by lenders to the Wilpons and the parties’ agreement upon definitive documentation. These would not appear to be major obstacles at this point. 

On the eve of the jury trial, almost no journalist had written about the possibility of settlement, except Richard Sandomir and Ken Belson of The New York Times in their article on March 18, 2012, “Prospect of Jury Trial in Mets’ Madoff Case May Push Sides Toward Settlement.” Why then, would Picard have agreed to what appears to be such a favorable result for the Wilpons? Some of the possibilities are as follows:

1. While there have been a number of important rulings by Judge Jed S. Rakoff that are adverse to the Trustee in this case, it is at the trial court level. Although such rulings have value as authority in other cases, they are not binding precedent for any other judge or case. If Picard had to appeal an adverse final result in the Wilpons’ case, he could have received a negative result at the appellate level that would have been binding precedent.

2. Picard has taken increasing public criticism for the legal fees in the Madoff matter, which have now exceeded a quarter billion dollars.  As large a number as the Settlement Payment may be, it pales in comparison to a number of other cases brought by Picard with potential billions of dollars at stake. The Trustee can now focus on these cases more fully.

3. The Trustee wanted to obtain a significant recovery from the Wilpons, not drive them out of business, in view of the many new complexities that such a result would have brought.

4. The risks and sensationalism of a jury trial have been avoided.

There still may be items of interest or surprise flowing from this case before the final definitive agreement is inked between Picard and the Wilpons.  This blog series will follow them.

(Michael J. Kline is the author of this entry and the author of an on-going analysis of the concerns of Madoff stakeholders. Mr. Kline is a partner with Fox Rothschild LLP, based in our Princeton, NJ office, and is a past Chair of the firm's Corporate Department. He concentrates his practice in the areas of corporate, securities, and health law, and frequently writes and speaks on topics such as corporate compliance, governance and business and nonprofit law and ethics.)

[To be continued in Installment 73]

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