Sterling family trust trial -- if it happens -- could hold key to Clippers sale
JUL 04, 2014 6:00p ET
LOS ANGELES – One courtroom, two major issues, four days and a dozen or more lawyers – and, perhaps, the fate of a $2 billion offer for the Los Angeles Clippers and the end of a 2½-month racially charged saga involving the team’s owner.
That’s what lies ahead in a Los Angeles probate court trial that could end with a judge blessing Shelly Sterling’s plan to sell the NBA team – or handing her estranged husband Donald Sterling the legal ammunition he needs to scuttle the deal.
At least, that’s what’s currently scheduled. Donald Sterling's attorneys filed a petition late Thursday seeking to move the case to federal court. They contend that legal filings by Shelly Sterling — which included releasing reports from doctors declaring Donald Sterling has dementia — violated his privacy rights under federal law.
Pierce O'Donnell, one of Shelly Sterling's lawyers, decried the last-minute effort to thwart the trial.
"Donald Sterling's 11th-hour attempt to move the probate trial into the federal courts is a desperate act by a desperate man," O'Donnell said.
It is not clear whether the filing could delay the scheduled start of Monday's trial. The courts are closed for the July 4th holiday, and the trial is scheduled to begin in Los Angeles probate court at 8:30 a.m. local time.
And even if the trial goes ahead, there’s some possibility that the court action may end in confusion, ultimately throwing more uncertainty into a tumultuous dispute that began when a tape recording surfaced of Donald Sterling telling a female friend to stop bringing African-Americans to Clippers games and to stop posting photographs of herself with them on social media websites.
The object of his ire? A picture the woman shared on the Internet of herself with NBA legend Magic Johnson.
That tape recording and a subsequent appearance by Donald Sterling on national television launched a protracted fight over the future of a team that was for decades a cellar-dweller, and in recent years has been transformed into an NBA power with stars Blake Griffin and Chris Paul.
First, NBA commissioner Adam Silver banned Donald Sterling from the league and began the process of forcing him to sell the team. And then Sterling’s wife, from whom he is estranged but with whom he has enjoyed an amicable business relationship, took steps to force him out of the family trust that controls the Clippers and negotiated the sale of the team to former Microsoft executive Steve Ballmer.
And now a judge is set to decide whether Shelly Sterling’s removal of Donald Sterling from the family trust was proper – and if it was, whether his subsequent move to dissolve the trust has any effect on the proposed sale.
Donald and Shelly Sterling bought the Clippers in 1981 for $12.5 million. They ultimately transferred the team into the Sterling Family Trust, an entity in which each had equal decision-making powers.
But after the tape of Donald Sterling and his female friend surfaced, and after Silver began the process of forcing the sale of the team, Shelly Sterling began an effort to remover her husband from a decision-making position in the trust. She had Donald Sterling examined by two physicians, both of whom wrote reports in which they said he had dementia, possibly as a result of the early stages of Alzheimer’s Disease.
She removed Donald Sterling as a trustee and negotiated the proposed sale of the team to Ballmer for a record $2 billion. The contract with Ballmer required either that Donald Sterling sign off on the deal or that Shelly Sterling obtain a “final and non-appealable” court order approving it, which led her to file a petition in probate court seeking a judge’s blessing.
Donald Sterling signed a letter at one point indicating he supported the sale of the team, and also made public statements that seemed to back the deal. Ultimately, however, he decided he didn’t want to lose control of the Clippers and launched a counter attack.
On June 9, Donald Sterling signed documents “revoking” the trust, which has the practical effect of dissolving it and requiring the transfer of all of its assets back to their rightful owners – himself and his estranged wife.
Probate judge Michael Levanas, who will conduct the trial, is tasked with answering two questions:
-- Whether Shelly Sterling followed the language of the documents governing the trust when she removed her husband as a trustee.
-- Whether he has the power to consider how Donald Sterling’s revocation of the trust, signed 11 days after Shelly Sterling and Ballmer signed a sales contract for the team, affects the deal.
The rules governing the Sterling Family Trust outlined several scenarios under which either Donald Sterling or Shelly Sterling could be removed as a trustee. Shelly Sterling followed a provision with essentially five requirements: That he be examined by two doctors, that they are both licensed physicians, that they are regularly called upon to determine the capacity of others, that they are not related to him by blood or marriage, and that they certify in writing that he is incapacitated.
At one point, Donald Sterling’s physicians planned to challenge those doctors' conclusion that he was mentally incapacitated by hiring their own expert, who examined him and concluded he could manage his own affairs.
But after a hearing last week, the issues subject to the judge's consideration were narrowed. And so, instead, Donald Sterling’s doctors plan to challenge the process.
First, they plan to argue that Shelly Sterling tricked Donald Sterling to submit to the examinations.
In court papers, Donald Sterling’s lawyers asserted that Shelly Sterling used “undue influence” to get him to agree to the medical exams, which they said were conducted “under false pretenses.”
Shelly Sterling, they asserted, “hand-picked two doctors to surreptitiously remove Donald as a trustee of the trust via medical findings holding that he ‘lacks capacity.’” They also asserted in papers that the findings from the two doctors, both delivered in letters, did not meet the trust’s requirements that their opinions be certified. And they alleged that one of the doctors went out for drinks with Donald and Shelly Sterling after the examination.
“It is unclear,” Donald Sterling’s lawyers wrote, “at what point the purported medical examination ceased and at what point a social interaction began, with the consumption of alcoholic beverages taking place.”
Shelly Sterling’s attorneys have refuted those assertions, contending that Donald Sterling knew why the examinations were requested and that his attorneys were even present, in another part of his home, when he met with one of the doctors. They also contend that Shelly Sterling followed the trust – and that it was not her duty to remind her husband what the language in the document said.
“Donald is an adult, an attorney, and he had lawyers representing him throughout the relevant time period,” they wrote.
Once that question is settled, Judge Levanas will be asked to consider whether he has a role to play in determining whether the sale should go forward. Donald Sterling’s attorneys plan to argue that the court has no role, that the assets of the trust will be distributed to Donald and Shelly Sterling as community property, and it will be up to them – or a different court – to decide what to do with the team.
“In essence, the sale is now in the hands of Donald and Shelly, as individuals,” Donald Sterling’s lawyers wrote.
Shelly Sterling’s attorneys plan to argue just as vigorously that the sale agreement amounts to a contractual obligation for the trust that was entered into before it was dissolved. As such, they contend that the sale must be completed before the affairs of the trust are wrapped up.
Hanging over all of it is a July 15 date to complete the sale outlined in the agreement signed by both Shelly Sterling and Ballmer.
If it’s not wrapped up by then, it’s possible that Ballmer will be the next one in court – suing Shelly Sterling, or Donald Sterling, or both of them, for failing to live up to the terms of the sales contract.