Sports In the Courts Blog : New York Attorneys & Lawyers Specializing in Sports Law & Legal Analysis

Just as Fred Wilpon averted disaster by reaching a favorable settlement with Irving Picard, the trustee seeking to recover funds for victims of Bernie Madoff's Ponzi scheme, the Mets now face another lawsuit, this time by the family of Clara Almazo, who was struck and killed by an alleged drunk driver while crossing a Staten Island street with her grandson.

Almazo heroically pushed her grandson to safety, and was knocked approximately 150 feet by an SUV being driven by Brian McGurk. McGurk allegedly fled the scene, but turned himself in five hours later. He reportedly refused an alcohol breath test, but police nevertheless claim he showed no signs of intoxication at that point. 

McGurk had been at the Mets home opener, and after taking a bus back from the game, allegedly began drinking at Nurnberger Bierhaus. When he left, his vehicle struck Almazo, at approximately 9:50 p.m. Named in the lawsuit are the bar, Nurnberger Bierhaus, the Mets, Aramark and other related entities. Aramark, no stranger to these "dram shop" lawsuits (see Giants Stadium settlement), is alleged to have served McGurk while he was visibly intoxicated. The contract between Aramark and the Mets, may require Aramark to defend and indemnify the Mets with respect to the allegations in the Complaint.

Unfortunately for Almazo, based upon the facts presently known, it will be difficult to prove liability against the Mets and even Nurnberger Bierhaus, since there was no blood alcohol reading. A dram shop case requires evidence that establishments served alcohol to a patron such as McGurk while he showed signs of visible intoxication. This is usually done with a blood alcohol reading, combined with expert testimony. The Almazo family will instead have to rely upon eyewitness testimony.

The Complaint, a copy of which can be seen here, also seeks to recover for injuries sustained by Almazo's grandson. 

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With much media coverage, the Mets’ ownership settled their case with bankruptcy trustee, Irving Picard, who represents the victims of the Bernie Madoff scam. At first blush, the settlement appears somewhat favorable for the Mets owners as they were given 3 years to pay a reduced amount.

The detail that did not get much media notice is how Judge Rakoff made this settlement the inevitable outcome. When Judge Rakoff ruled that Picard couldn’t recover the astronomical sum of $1 billion from the Mets’ owners for their alleged knowledge of Madoff’s fraud and held that the most the Mets could pay was $303 million, the court set a financial “ceiling.” In turn, when the court ruled that the Mets owners were on the hook for at least $83 million in fictitious profits, the judge set a financial “floor.”

With a ceiling and floor built by the court, all the parties had to do was to choose a number in-between and that’s precisely what occurred. Once the court boxed the parties into a settlement range, the was no incentive to “roll the dice” on an expensive trial with an uncertain ending.  

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In January, we wrote that Irving Picard, the Trustee attempting to claw back money for Madoff victims, filed a motion for partial summary judgment, seeking a determination that the Mets owners ("Wilpon") obtained approximately $83 million in fictitious profits and therefore must pay this money back to the Trustee as a matter of law. In turn, Wilpon cross-moved for summary judgment, dismissing all of the Trustee's claims, on the grounds that Wilpon received profits in return for "fair value," and further, that its principal had been invested in good faith.

With a trial date of March 19, 2012, Judge Jed Rakoff granted the Trustee's motion for summary judgment, and denied Wilpon's cross-motion. Thus, Judge Rakoff set a "floor" of what Wilpon will owe, at $83 million. The Court has not yet determined how this amount will be allocated among all of the defendants (such as Saul Katz, Wilpon's companies and other related defendants). With regard to Wilpon's cross-motion, although Judge Rakoff expressed skepticism as to whether the Trustee would be successful, the Court found an issue of fact (described by Judge Rakoff as a "residue of disputed factual assertions") as to whether Wilpon acted in good or bad faith, which must be resolved by a trier of fact.

Although this may seem as a loss on its face, consider that Wilpon was originally faced with a $1 billion lawsuit. The Trustee's case has now been whittled down to $83 million, plus the possibility of $303 million - the Trustee must first convince a trier of fact that Wilpon turned a blind eye to Madoff's fraudulent activities.

It is not insignificant that Judge Rakoff wrote that he was skeptical whether the Trustee could recover the remaining $303 million. Both sides would be wise to immediately commence settlement negotiations, and manage the risk associated with going to trial.  

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Mets Owner Fred Wilpon and his companies obtained a partial victory last week, after Judge Jed Rakoff dismissed a portion of Madoff Bankruptcy Trustee Irving Picard's "claw back" lawsuit against Wilpon/Katz/Sterling (collectively, "Sterling"). While the decision does significantly reduce Sterling's exposure, Judge Rakoff left some questions unanswered, and the Court's ruling is not as overly favorable as is being reported.

Judge Rakoff did dismiss all claims against Sterling that do not allege actual fraud or equitable subordination (a claim essentially seeking to subordinate any of Sterling's claims of lost profits to that of other victims based upon Sterling's alleged conduct). Picard alleges that Sterling knew or should have known that its withdrawals were the product of Madoff’s Ponzi scheme. Judge Rakoff held as a matter of law that the "safe harbor" provision of the Bankruptcy Code protected customers like Sterling - meaning that payments made by Madoff to its customers are considered "settlement payments" that a Bankruptcy Trustee such as Picard cannot "claw back" from the customer, unless there is evidence of actual fraud. This wiped away a substantial part of Picard's Complaint.

However, since the "safe harbor" provision does not protect against fraud, Judge Rakoff declined to dismiss the remainder of Picard's Complaint. For example, since Madoff transferred money to some customers to avoid paying other customers (the intent of a Ponzi scheme), those customers that benefited are subject to "claw back." Judge Rakoff determined that the Trustee can recover any of Sterling's profits, but can only seek principal that Sterling paid to Madoff by showing that Sterling "willfully blinded" itself to Madoff's fraud. It has been reported that the net result is that Sterling's exposure is now either $83 million or $295 million - the former being Sterling's alleged profits over a two year period prior to the bankruptcy filing, and the latter being Sterling's alleged profits over the course of the investment. In contrast to multiple articles and statements claiming that the Trustee's recovery is limited to a two year period preceding the bankruptcy filing, Judge Rakoff expressly declined to determine whether the Trustee is limited to that period, or whether profits earned over the course of Sterling's investment are recoverable. Moreover, Judge Rakoff permitted the Trustee to proceed with its claim that Sterling was "willfully blind" to Madoff's fraud, thereby subjecting principal paid by Sterling (not just profits) to recoupment by the Trustee. Thus, Sterling is still substantially exposed, and the Trustee will nevertheless appeal Judge Rakoff's decision to the Second Circuit Court of Appeals.

In sum, the decision is a win for Sterling as it narrows the Trustee's claims and reduces Sterling's financial exposure. On the other hand, a significant amount of money remains at stake, and Wilpon will have to continue his search for a minority partner to sell part of his share in the Mets.

Judge Rakoff's decision can be seen here. 

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In light of the recent USC, Ohio State, Miami, Reggie Bush, Terrelle Pryor, Auburn's Cam Newton (to just get started) controversies and scandals, the NCAA President Mark Emmert is now seeking "serious and fundamental change." Well, good for him, now that there is smoke, fire and a raging media inferno in college sports.

You can imagine the pride of the parents who trusted schools like the University of Miami with their young sons who were, in turn, handed over to criminals like Nevin Shapiro. All Mr. Shapiro, a convicted Ponzi scheme felon, did was hook up the underage student-athletes with cash, booze and illegal prostitution. This doesn't exactly sound like college math or English.

So here come the usual calls for reform and "fundamental change" right on cue. So what can be done to save the NCAA from looking like an absentee landlord while money-pushing boosters and improper agents are crawling through its college sports?

The first thing the NCAA needs to do is stop this fraud of a "scholar-athlete" at the highest level of its sports. Maybe I am being too broad here but these major college sports schools are nothing more than a feeding system for the professional leagues. We can no longer pretend that money should not be involved. Too many college students are sent to school in near poverty to play for major universities that sell jerseys bearing the students' names. The students get nothing from college merchandise and TV deals and there is the problem.

The NCAA needs formulate a financial stipend to paid to all players at the Division 1 level. There I said it, college athletes need to be paid to follow the rules. The stipend should be a flat sum for everyone in the sport (i.e. each Division 1 football player gets $25,000 a year).

Now there has been a lot of talk about Miami getting the "death penalty" of no TV, no scholarships and no bowls for its sins. This type of NCAA capital punishment will not work without a corresponding "death penalty" for players (so to speak of course). The type of fundamental change is really not that complicated. If Shapiro gave illegal gifts to players, then the players knowingly took cash, cars, booze, prostitutes and maybe even worse. If a college player commits a major rule violation of this type, then that should be the end of his or her college sports career.

It is obvious (painfully so), that the penalty must be so awful for the players that they would never violate the rules. Those players who knowingly take extra cash, jewelry and commit crimes, have no business in the NCAA and college sports is better to be rid of them.

If you want fundamental change then be willing to take a serious stand. 

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It seems like everyday some major college is embroiled in scandal for one reason or another, and UGA is trying real hard to claim the top prize in athletic scandals. First it was Jim Harrick in 2003, when Georgia found that there was academic fraud committed involving Jim Harrick Jr., who granted credit hours to three players who did not attend the class in basketball strategy he was teaching, and now former football coach Jim Donnan is allegedly involved in a failed Ponzi scheme which has enevloped coaches from Virigina to Texas. It has been alleged that Donnan who formed GLC Enterprises in March 2004, solicited investments from more than 50 individuals and entities and made commissions ranging from 15 percent to 20 percent for any new investments solicited. According to court documents, investors contributed nearly $82 million into GLC Enterprises, but less than $12 million was spent on inventory and at least $13 million in investor money remains unaccounted for. As revenues declined, it is alleged that GLC eventually used money from new investors to pay old investors, which, according to the court documents, constituted a Ponzi scheme. At this time, Donnan's role in GLC is disputed as court documents indicate the Donnan informed potential investors that he was an officer in the company and indicated he was the vice president and secretary on different occassions. This is an assertion which Donnan's attorney denies. The Donnan's have invested over $5.4 million in the company and have offered to pay GLC's creditors $5 million of the $8.25 million demanded, and when that amount was not accepted, the Donnan's filed for Chapter 11 bankruptcy protection. While, this alleged Ponzi scheme will never be compared to the Madoff scandal, it serves as another black eye on the college athletics landscape, especially as high profile current head coaches are involved. At this point, there has been no independent investigation undertaken by UGA and there probably will not be one as there are no allegations that any criminal activity occurred when Donnan was coach from 1996 to 2000.

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