The Donald Sterling mess has gone from bad to worse. Sterling announced this week that he would move forward with his $1 billion lawsuit against the NBA and Commissioner Adam Silver. Sterling seemed to believe that dropping the lawsuit would remove his lifetime ban from the NBA, though neither the NBA nor the agreement between his wife, Shelly, and the league indicated that. Now the sale of the Los Angeles Clippers is on hold and a major legal battle is getting underway.
The circumstances as they stand now make this a very wonky lawsuit. The Wire spoke with several attorneys to get an understanding of how this lawsuit can move forward, with Sterling fighting both the NBA and his estranged wife. (That is, if it does move forward. Donald Sterling is known for flip flopping on the status of his legal cases.)
In order to sell the Clippers, Shelley Sterling had to remove her estranged husband from the Sterling Family Trust. He was ruled mentally incapacitated, allowing her to take full ownership of the Trust where the Clippers were held. Then, she sold the team to Steve Ballmer for $2 billion. In order to get the deal approved by the NBA, her sales agreement had an indemnification clause. The NBA's statement described the clause as so:
Mrs. Sterling and the Trust also agreed not to sue the NBA and to indemnify the NBA against lawsuits from others, including from Donald Sterling.
That clause could cost Mrs. Sterling a great deal of money and a massive headache. The NBA might not be off the hook, either. Attorney Randy Kessler, a specialist in matters of divorce law, told The Wire via phone interview that, "If [Donald Sterling] wants to go forward and she says she is indemnifying, that's great, but indemnification doesn't solve all the problems."
There could be an event in which Mrs. Sterling can no longer afford the trial costs, "Nothing is guaranteed. In terms of indemnification, [her lawyers] can challenge that. What if she blows all her money? What if there is a bad investment, and she cannot afford it? It is a lot of money to be banking everything on her guarantee." That amount of money is $1 billion in damages to Donald Sterling, plus all of the legal fees the NBA would incur over the time of the lawsuit. While unlikely, it is something the NBA must consider when planning for the lawsuit.
"If the NBA gets sued, they're looking at every angle. I don't think indemnifications are as strong as people would like to think they are," explains Kessler, "The indemnification doesn't guarantee you'll always have financial protection from a lawsuit."
It's also important to remember that the sale never actually went through. It is subject to approval by the NBA's Board of Governors, and the board cannot approve until Sterling drops the lawsuit. Now that's an odd Catch-22. Attorney Collin Schwartz points out that the sales agreement could have the indemnification taking "effect before the sale actually goes through. It can be approved because Donald Sterling can seek a temporary restraining order, including stopping the sale of the team." If that is the case, the indemnification is already active now.
The indemnification could also have an "end" date, though that is unlikely, "If someone wants an indemnification, they say it is from now until the end of time and goes onto your successors," explains Kessler. "An indemnification clause is usually through the end of time. That might not be what she did though, so it could be, once the sale is done, and if [Donald] Sterling still wants to sue, she doesn't have to be on the hook."
There's also the divorce and Donald's mental incapacitation.
Donald and Shelley Sterling are going through a divorce while she has complete ownership of the Trust, but this trust does not have all of Mr. Sterling's assets in it. "He has other avenues to get money, he's too smart to be totally dependent on the trust. You don't put every penny into the trust. Even if he puts 90 percent in the trust, he has more than enough money to pay lawyers," explained Kessler. So at least Donald can afford this massive lawsuit even while his wife holds complete control of the Trust.
As for Donald Sterling's mental state, this can be used against him right from the beginning of the trial. He may be forced to take a legal guardian. In a case with a mentally incapacitated plaintiff, "You might have to have a guardian verifying that your actions are rational. He has to make decisions that are in his business and personal interests. Sometimes, a guardian is appointed to make the decisions for him."
The defense could use this issue as a weapon: "He might not need a guardian, but the other side might raise his sanity or ability to make decisions to the court. It might be a work around," explained Kessler.
There is also the actual divorce proceedings. Attorney Kessler quite literally wrote the book on divorce and believes this could become a major issue, as the lawsuit and divorce cannot take place simultaneously. "Divorce can complicate things in a thousand ways. Once there is a divorce, all the assets in the marriage, before they are divided, they have to be valued. Before the court can decide how to divide a property, they have to value it. That is what the NBA was afraid of — that valuation. Divorce can delay everything."
Of course, Donald and Shelley Sterling could put their divorce on hold while he sues the NBA, and indirectly, his wife (depending on the terms of the indemnification.) Or, you know, Donald Sterling could let it go. Even if he wins the lawsuit, he would remain banned from the NBA for life.
This article is from the archive of our partner The Wire.
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