A U.S. District Judge in Delaware on Friday dealt a significant blow to the Los Angeles Dodgers’ plans to sell the media rights to future games, halting the sales process while he considered an appeal by Fox Sports.
Judge Leonard Stark also said he likely will agree with Fox’s position that a bankruptcy judge who authorized the sale process erred when he determined that certain protections granted to Fox in its existing contract with the Dodgers were unenforceable in bankruptcy.
”The court is also likely to conclude that the bankruptcy court opinion and/or order are based on one or more clearly erroneous findings of fact,” wrote Stark, who said he would issue an opinion on Tuesday further explaining his reasons for granting Fox’s request for an emergency stay of the bankruptcy order.
Attorneys for the Dodgers and the team’s creditors committee had warned Stark at a hearing Thursday that issuing the stay could torpedo plans to sell both the team and the media rights by the April 30 deadline included in a settlement between the Dodgers and Major League Baseball.
But Stark noted in his order that it is ”undisputed” that the team itself will be sold by April 30, even with entry of the stay, and that the stay will not substantially injure the Dodgers or the creditors committee.
”LAD has no comment other than that it will be reviewing the court’s opinion when issued on Tuesday,” a Dodgers spokeswoman wrote Friday in an email replying to a request for comment.
Fox Sports spokesman Chris Bellitti also had little comment.
”We’re letting the legal process play out,” he said.
Lawyers for Major League Baseball and a spokesman for the league did not immediately respond to an email seeking comment.
Stark is set to hear arguments on the merits of Fox’s appeal at a Jan. 12 hearing, but Thursday’s hearing on whether to issue the emergency stay offered a prelude to next month’s arguments.
Fox attorney Catherine Steege argued Thursday that U.S. Bankruptcy Judge Kevin Gross exceeded his authority in authorizing the media rights sale, saying Gross effectively rewrote the existing contract between Fox and the Dodgers.
That contract gives Fox an exclusive 45-day period starting in October 2012 to try to negotiate a contract extension with the Dodgers. The contract also prohibits the Dodgers from talking to other potential buyers of the media rights before Nov. 30 of next year and gives Fox a limited right of first refusal on competing offers received after that date.
But in his order, Gross said those ”no-shop” provisions were unenforceable in bankruptcy, a finding that Stark indicated likely will not pass legal muster.
The sales process approved by Gross also moves up the exclusive negotiating period by about 10 months, giving Fox until Jan. 19 to strike a new deal with the Dodgers. Even if current Dodgers management reaches a new telecast rights agreement with Fox, that agreement still would be subject to approval by the successful bidder for the team, a condition Fox says decreases its leverage in negotiations.
Stark said Fox had met its burden of showing that it would be irreparably harmed without the stay because the media rights sale process approved by Gross gives Fox a lesser chance of winning the right to televise Dodgers games after 2013 than it had before Gross entered his order.
Stark also said the bankruptcy court order compels Fox to negotiate with the Dodgers without the full leverage that Fox contracted for, and that issuing the stay was in the public’s interest, particularly in seeing that contractual rights are enforced.
The Dodgers sought bankruptcy protection in June after baseball Commissioner Bud Selig rejected a new TV deal with Fox that Dodgers owner Frank McCourt was counting on to keep the franchise solvent. After the bankruptcy filing, attorneys for Selig successfully fought to force the Dodgers to accept bankruptcy financing from Major League Baseball, arguing at the same time that McCourt should be forced to sell the team.
After threatening to seek bankruptcy court permission to sell the media rights without the approval of MLB, the Dodgers reached an agreement with the league that calls for a sale of both the team and the media rights.
The April 30 sale deadline in the settlement between the Dodgers and MLB coincides with the deadline for McCourt to pay $131 million to his ex-wife, Jamie, as part of their divorce settlement.
Fox Sports has argued that a sale of the team itself without the media rights will generate enough money to pay Dodgers creditors in full without subjecting the team or its new owner to damages for breaching the existing contract with Fox.