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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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(Michael J. Kline, Esq., the author of this entry and a co-author of this blog, 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.)

This blog series has been monitoring key milestones in the epic battle of Madoff Trustee Irving Picard against the Wilpon-Katz-Mets individual, business, family trust and charitable interests (the “Wilpons”). Yesterday Judge Jed S. Rakoff issued an Order (the “March 5 Order”)  (sans Opinion, which he said will come some time later) in the ever-heating litigation that will culminate with an upcoming March 19 trial date. Even after a trial, however, either or both sides can be expected to appeal. The effect of the continuing uncertainty on efforts of the Wilpons to sell minority interests in the Mets remains unclear.

In his March 5 Order, Judge Rakoff denied the Wilpons’ motion for summary judgment while expressing the view that “the Court remains skeptical that the Trustee can ultimately rebut the defendants' showing of good faith, let alone impute bad faith to all the defendants.” Therefore, absent a settlement, which appears unlikely, Judge Rakoff’s jury trial commencement date of March 19 looms ahead for the Wilpons and Picard.

Additionally, Judge Rakoff granted Picard’s partial summary judgment motion, subject to determination of “the exact amount thereby due the Trustee (though capped at the $83,309,162 that the Trustee expressly seeks on this motion), and how payment should be apportioned among the defendants.”

In writing about the March 5 Order in his article entitled “Mets Must Pay, Go to Trial,” Adam Rubin pointed out,

. . . how the judge apportions the money owed among the cash-strapped Wilpon family, its business and charities will be “critical.” Any member of Wilpon's party seeking to appeal the ruling likely will be required to post a bond worth 110 percent of Rakoff's verdict against them. That would ensure that Picard ultimately will collect the money if the ruling is not overturned by a higher court.

Installments 69 and 58 of this blog series discussed earlier postings by Mr. Rubin and Richard Sandomir of The New York Times regarding the often-alleged continuing efforts of the Wilpons to sell for $20 million each, up to 10 minority 4% pieces of the Mets (the “Minority Sales”). The earlier Installments discussed the legal complexities for Minority Sales, which were originally rumored to be scheduled for the end of January, then the end of February and now still indefinite in time frame. Each time an important trial date surfaces for the Wilpons, discussion of putative Minority Sales becomes almost inaudible.

As stated in Installment 69,

Minority Sales could be delayed indefinitely by the concerns of cautious lawyers for the potential buyers about the pricing of the Minority Interests that theoretically gives the Mets a total value of $500 million. If such value can be found to be inadequate under some credible valuation standard, Picard could possibly attack the sales under New York law as inadequate.

This case clearly will have many more developments in the near future.
 

[To be continued in Installment 71]

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Previous Installments in this blog series, the most recent of which was Installment 64, have followed key rulings of Federal District Court Judge Jed S. Rakoff in the battle between Irving Picard, the Trustee in the Madoff bankruptcy proceeding, and the Wilpon Interests. (Capitalized terms used herein that are not defined herein shall have the meanings assigned to them in Installment 64.) In his latest Opinion and Order of January 17, 2012, Judge Rakoff denied the motion of Picard for an immediate interlocutory appeal to the Second Circuit Court of Appeals of Judge Rakoff’s earlier ruling on September 27, 2011 that greatly limited the amount that Picard could seek to recover from the Wilpon Interests. As a result Judge Rakoff’s “fixed and firm” trial date of March 19, 2012 remains unaffected.

As pointed out by Richard Sandomir in his New York Times article today entitled “Mets Owners Can Look Forward to Trial During Spring Training,”

The following picture, then, is a near certainty: a month into spring training, Wilpon and Katz, while fielding a team with a reduced payroll, minus its best player, Jose Reyes, and swimming in debt, will be under oath in Rakoff’s Manhattan courtroom. The trial could take at least four weeks.

Therefore, the Wilpon Interests will likely be consumed more with an ongoing trial than baseball on Thursday, April 5, the scheduled opening day of the Mets season at home against the Atlanta Braves, unless the parties can settle before then. (On a more positive note for the Wilpon Interests, March 19 itself appears to be an open date during spring training.)

The possibility of settlement, however, presently seems unlikely, since as Sandomir states, the Wilpon Interests view a trial as “a chance to formally rebut claims that they profited improperly from investing with Madoff and built their fortunes on his fraud.”

Pitchers, catchers and injured players can report as early as Valentine’s Day. Stay tuned for new developments in the ever-evolving case of Picard vs. the Wilpon Interests.

[To be continued in Installment 69]

(Michael J. Kline, Esq., the author of this entry and a co-author of this blog, 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.)

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This Installment will address the potential legal disabilities that exist under the New York Debtor and Creditor Law for the Wilpon/Katz families, the owners of the New York Mets (collectively, the “Wilpon Interests”), in their effort to sell a minority interest(s) in the Mets, in light of the existence of the lawsuit against them (the “Wilpon Case”) by Irving Picard, the Trustee in the Bernard L. Madoff bankruptcy. Installment 57 in this blog series focused on the whirlwind of court proceedings in mid-August respecting the Madoff bankruptcy and their potential impact on the Wilpon Case.

Two weeks after these courtroom events, it was reported that negotiations had been terminated between the Wilpon Interests and David Einhorn (the “Einhorn Negotiations”) that could have provided $200 million to the Wilpon Interests in exchange for a minority interest in the Mets. Such minority interest, however, reportedly could have ripened under the Einhorn Negotiations into a majority interest under certain circumstances after the passage of time. A number of journalists who are closely following the Wilpon Case have discussed a variety of reasons for the breakdown in the Einhorn Negotiations.

On September 1, 2011 Richard Sandomir, with the contribution of Ken Belson, published an article in The New York Times entitled “Deal to Sell Piece of Mets to Einhorn Falls Apart,” which provided insights into the termination of the Einhorn Negotiations. Among other things, the Sandomir article ascribed the breakdown to:

(i) Mr. Einhorn’s view that “the Mets sought changes to their agreement. . ., setting the stage for the rupture”;

(ii) “[H]is [Mr. Einhorn’s] disappointment at the Mets’ opposition to a provision that would have given him preapproval [by Major League Baseball] to be the team’s majority owner; and

(iii) The Mets owners’ shift in tactics to “seeking to attract people willing to buy what amounts to a vanity share in the Mets,” rather than one large buyer.

On the same day, Adam Rubin wrote an article for ESPN.com entitled, “David Einhorn, Mets fail to reach deal.” The Rubin article pointed out that, among other things including items covered in the Sandomir article, a source also said that "Einhorn's claim that the Mets kept changing terms at the last minute was not accurate and that it was actually Einhorn who thought the Mets were in a compromised position and tried to bend the terms to his advantage."

Clearly there are differing perceptions and reports as to the fundamental reasons for the breakdown in the Einhorn Negotiations. However, one area that was not addressed was the potential impact that the pending Wilpon Case may have on the ability of the Wilpons to make a single large deal as opposed to multiple potential smaller deals with “vanity” investors. 

It is likely that there should be concern by Mr. Einhorn and similarly situated large potential purchasers of interests in the Mets that a conveyance by the Wilpon Interests, in light of the serious financial stress that the Wilpons are experiencing and the pending Picard lawsuit, could come under possible attack by Picard as a "fraudulent conveyance" lacking "fair consideration" under Section 273-a of Article 10 of the New York Debtor and Creditor Law (the “Law”). provides the following:

§ 273-a. Conveyances by defendants. Every conveyance made without fair consideration when the person making it is a defendant in an action for money damages or a judgment in such an action has been docketed against him, is fraudulent as to the plaintiff in that action without regard to the actual intent of the defendant if, after final judgment for the plaintiff, the defendant fails to satisfy the judgment.

Section 272 of the Law defines "fair consideration" in relevant part as follows:

§ 272. Fair consideration. Fair consideration is given for property, or obligation, a. When in exchange for such property, or obligation, as a fair equivalent therefor, and in good faith, property is conveyed or an antecedent debt is satisfied, . . .

Section 279 of the Law reads as follows:

§ 279. Rights of creditors whose claims have not matured. Where a conveyance made or obligation incurred is fraudulent as to a creditor whose claim has not matured he may proceed in a court of competent jurisdiction against any person against whom he could have proceeded had his claim matured, and the court may,

a. Restrain the defendant from disposing of his property.
b. Appoint a receiver to take charge of the property,
c. Set aside the conveyance or annul the obligation, or
d. Make any order which the circumstances of the case may require. 

Using the Einhorn transaction as an example, this posting will show the potential application of the foregoing provisions of the Law. If Mr. Einhorn or another single investor were to sink $200 million or more in the future prospects of the Mets, there is a real possibility that the transaction can be attacked under the previously cited Sections of the Law by the Trustee. Because Mr. Einhorn was reportedly seeking ultimate control or ownership of the Mets for the $200 million if the Wilpon Interests failed to repay the amount after some passage of time, there may be arguments made by the Trustee that what is being really currently conveyed now is future control of the Mets and what should be “fair consideration” for the prospective current sale of control of the Mets. It is certainly arguable by him that the Wilpon Interests are not currently ready, willing and able sellers of Mets interests with no constraint to sell; therefore, the $200 million may be a bargain price for the to control the Mets in the future.

Smaller sales to “vanity” purchasers with no prospects to characterize the sales as a potential future change in control of the Mets may be less susceptible to attack under the Law.

While the questions of "fraudulent transfer" and "fair consideration" may be challenging, complex and difficult in this context or, even a stretch because of the countless personal and business involvements of the Wilpon Interests, the creative arguments and inclinations of Picard in the Wilpon Case and other cases have had few limits so far.
 

[To be continued in Installment 59]

(Michael J. Kline, the author of this entry and a co-author of this blog, 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.)

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This Installment in the series on this blog will focus on the whirlwind of activity this past week that had sports writers and fans of the New York Mets buzzing about an appellate opinion rendered by the Second Circuit Court of Appeals on Tuesday and a hearing in a Federal District courtroom in Manhattan at 4 P.M. on a Friday afternoon in mid-August about the Bernard L. Madoff scandal (“Madoff”).

Second Circuit Court Opinion Issued August 16, 2011

Last Tuesday, the U.S. Court of Appeals for the Second Circuit (the “Circuit Court”) issued its long-awaited opinion (the “Opinion”) regarding the method of calculating the amount that net “losers” in the Madoff enterprise are entitled to recover. The Circuit Court adopted the “Net Investment Method” proposed by the Trustee Irving Picard rather than the “Last Statement Method” for the Madoff case, which

limits the class of customers who have allowable claims against the [Madoff] customer property fund to those customers who deposited more cash into their investment accounts than they withdrew because only those customers have positive “net equity” under that method.

The Last Statement Method had been put forth by some Madoff victims to allow the “losers” to use the fictitious amounts reflected in their final Madoff account statements as the basis for the amounts that they lost in the scandal.

The Opinion immediately set off a plethora of conjecture by Mets fans, sports writers, attorneys and legal scholars as to what impact, if any, the Opinion would have on the hearing (the “Hearing”) to be held in the Trustee’s case against the Wilpon/Katz families, the Mets owners, in the Federal District courtroom in Manhattan of Judge Jed S. Rakoff last Friday (the “Wilpon Case”).

On August 18, 2011 Richard Sandomir and Ken Belson published an article in The New York Times entitled “Madoff Decision Is Significant Setback for Owners of Mets,” that provided analysis of the impact of the Opinion. The article pointed out that the Opinion dealt with alleged net “losers” in the Madoff scandal, who were trying to recover more from the Trustee, and not those parties who were alleged net “winners,” such as the Wilpons, who were trying to resist the Trustee’s $300 million “clawback” efforts and his attempt to recover $700 million in principal as well for alleged “willful blindness” of the Wilpons to the Madoff scheme.

The Sandomir/Belson article pointed out that the Opinion itself stated it was not addressing the issue of alleged willful blindness of the Wilpons: ‘It is not contended on this appeal that any [Madoff] victim knew or should have known that the investment and customer statements were fictitious.’ As to the question of the impact of the Opinion on clawback in the Wilpon case, the Sandomir/Belson article observed, “legal experts were divided on whether the appeals court ruling would embolden Picard in his bid to recoup as much money as possible from Wilpon and Katz.”

Hearing on Wilpon Case on August 19, 2011

The frenzy of activity affecting the Wilpon case continued last Friday. Installment 54 of this series pointed out that there was a new playing field and environment to be confronted by the Trustee with the entry by Judge Rakoff into the picture. By his actions at the Hearing, Judge Rakoff confirmed that the game in his court will differ from the home field advantage that Mr. Picard has enjoyed in the bankruptcy court.

On Friday, Adam Rubin wrote an article for ESPN.com entitled, “Ruling on Tossing Suit vs. Wilpons Will Wait,” in which he said “[Judge] Rakoff set a trial date for March but cautioned not to read into that about his likelihood of tossing the case beforehand.” Therefore, after summoning all parties to his courtroom for the Hearing on the eve of a late summer weekend, Judge Rakoff heard lengthy arguments by the attorney teams for the Trustee and the Wilpons but reserved ruling on any of the matters before him.

Among other things Mr. Rubin reported that “[e]xperts believe the $700 million portion [of principal return] may ultimately be rejected by Rakoff, but they still expect the Wilpons to be on the hook for a $300 million ‘clawback’. . . .” The Wilpons had argued at the Hearing that the Opinion was not applicable to the Wilpon Case.

As a consequence, under the specter of the potential for dismissal of all or part of the Wilpon Case by Judge Rakoff in late September at the earliest, the parties must now preliminarily prepare for the possibility of a highly extensive and expensive public trial, while being admonished to vigorously seek settlement. Mr. Rubin noted that former New York governor Mario Cuomo, who has been appointed mediator in the Wilpon Case, was in the courtroom.

One thing is clear. The Wilpon Case is not over and will continue to generate considerable interest and potentially new legal precedents. After his article was published, Mr. Rubin said, “Hopefully I'm done for a few days with the topic.” Presumably he desires to return his attention to the fields on which Mets baseball is usually played.

[To be continued in Installment 58]
 

(Michael J. Kline, the author of this entry and a co-author of this blog, 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.)

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This is the fifty-fourth in a series of Installments on this blog that are discussing issues arising in the aftermath of the global Ponzi scheme perpetrated by Bernard L. Madoff (“Madoff”). A number of recent Installments in this series, such as Installment 52 and, earlier, Installment 17 have used public filings and media publications to highlight the apparently inconsistent and peremptory approach that Irving Picard, the Trustee in the Madoff bankruptcy (“Picard”) has taken with respect to the Wilpon/Katz families, the owners of the New York Mets, and their Section 501(c)(3) private foundations (collectively, “Wilpon/Katz”), in contrast to other charitable organizations.

Now, however, there will be a new playing field and environment to be confronted by Mr. Picard and his army of attorneys in his crusade against the Wilpon/Katz families. In contrast to the friendly home field advantage for Mr. Picard in the bankruptcy court, Judge Jed S. Rakoff, a Federal District Court judge in Manhattan, has taken jurisdiction of the Wilpon/Katz matter. A July 6, 2011 article by Richard Sandomir in The New York Times characterized Judge Rakoff as

a former federal prosecutor and defense lawyer with an independent streak and a flair for phrase-making. He has been called an activist judge. He has been called a maverick. He has been called other things, a number of them probably unprintable. But few observers of the federal bench would dispute that he is capable of the unexpected.

The article by Mr. Sandomir goes on to say that “lawyers familiar with Rakoff and his appetite for novel rulings said this week that they would not be shocked if he tried try to say something larger about the law.” Indeed Judge Rakoff indicated some skepticism as to “a question that is critical to Katz and Wilpon’s case. How, he wondered, can investors like them not be judged by the securities laws that governed their 25 years of investing with Madoff, but by the bankruptcy laws that came into play after Madoff’s collapse.”

It is clear that Judge Rakoff may bring a bold new and perhaps refreshing and enlightening direction to the Wilpon/Katz matter. He does not appear to be willing to limit his review to the scope that has been so far carefully defined by Mr. Picard and the bankruptcy court. His involvement may have significant impact on the entire Madoff case. It is hoped that an enlarged field of inquiry by Judge Rakoff will address some of the peremptory and perplexing decisions of Mr. Picard in the Madoff bankruptcy that appear to be inconsistent and perhaps even unfair.

[To be continued in Installment 55].

(Michael J. Kline, the author of this entry and a co-author of this blog, 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.)

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