SBD/September 28, 2011/Franchises

Judge Awards Partial Victory In Mets Lawsuit, Limits Amount Madoff Trustee May Recover

Katz (l) and Wilpon will only have to return some profits they made from Madoff
U.S. District Court Judge Jed Rakoff  "awarded both sides a partial victory" yesterday when he issued a decision allowing Bernie Madoff trustee Irving Picard's suit against Mets Owners Fred Wilpon and Saul Katz "to go forward, but limiting how much money the trustee may ultimately be able to recover," according to Richard Sandomir of the N.Y. TIMES. The judge allowed Picard's claim that the Mets owners "were willfully blind to warnings that Madoff was possibly engaged in a fraud during their many years of investing with him." Rakoff also "seemed to clear the way" for Picard to "force the men to return some of the profits they earned from their investments with Madoff." But as a result of Rakoff's ruling, Picard "at most could force Wilpon and Katz to turn over $300 million to $400 million." Rakoff ruled that Picard "produced sufficient -- if 'less than overwhelming' -- evidence that the men might have indeed been blind to warnings about Madoff for that claim to go to trial." He also ruled that Picard, "in his effort to recover money from Wilpon and Katz, could pick only a sliver of time from their long years of investing with Madoff." The judge ordered both sides to appear before him today "to chart the next phase of the lawsuit." The 18-page decision "preserves the chance of a possible settlement," but absent an agreement, the case is scheduled for trial March 5. Sandomir notes the Mets "would probably feel satisfied if, through trial or mediation, they end up paying the trustee only $80 million -- a sum Wilpon and Katz would probably be able to raise by selling some of their real estate and other assets, or even a stake in SNY, the cable network they control." Mets holding company Sterling Equities in a statement said it was "pleased that the court today dismissed 9 of the 11 counts in the Trustee's complaint, and that the lone remaining count in which the Trustee seeks to recover payments from the Sterling Partners is limited to a two-year period." Sandomir notes the decision in some ways "gave Wilpon and Katz reason to hope they could survive financially and hold on to the team they cherish as something of a family trust" (N.Y. TIMES, 9/28).

FROM THE BEAT: SI.com's Michael McCann noted Wilpon and Katz "received decidedly mixed legal news" yesterday. Rakoff "refused to dismiss the most damaging counts: that Wilpon and Katz earned $295 million in fictitious profits through investing in a scheme that they knew to be too good to be true," and that they "should return their $700 million principal, as well." Unless the parties "agree on a settlement that would likely require Wilpon and Katz to pay tens of millions, if not hundreds of millions, a trial will probably be scheduled in the coming months." But Rakoff also ruled that Picard "can only go after the $700 million in principal if he proves that Wilpon and Katz were intentionally blind -- as opposed to unreasonably inattentive -- to Madoff's fraudulent actions." Picard, therefore, will "have to establish that Wilpon and Katz had substantial and informed suspicions," requiring him to show "considerable evidence pointing to what Wilpon and Katz actually thought" (SI.com, 9/27). The WALL STREET JOURNAL's Bray, Rothfeld & Futterman cite legal sources as saying that the high standard of proof "could be a very difficult burden for the trustee to meet" (WALL STREET JOURNAL, 9/28). In N.Y., Kaja Whitehouse notes Wilpon and Katz "came back from behind," but they are "far from safe." The "late-inning decision to throw out much of the case also significantly raises the bar for the bankruptcy trustee" (N.Y. POST, 9/28). ESPN N.Y.'s Adam Rubin noted the Mets Owners "received favorable news," but "are not fully off the hook" (ESPNNY.com, 9/27). In Newark, Andy McCullough wrote Wilpon and Katz "received a batch of good news" (NJ.com, 9/28).
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