WILMINGTON, Del. – A U.S. District Court judge in Delaware is considering whether to halt a bankruptcy court order approving a process for the Los Angeles Dodgers to sell the media rights to future games until he rules on a Fox Sports appeal.
Judge Leonard Stark heard two hours of arguments Thursday but did not immediately rule on Fox's request for an emergency stay while he considers its appeal of the original bankruptcy court ruling.
Stark is set to hear arguments on the merits of Fox's appeal at a Jan. 12 hearing.
Fox attorney Catherine Steege argued that the proposed media rights sale process violates Fox's exclusive rights under an existing contract with the Dodgers, and that Fox will suffer irreparable harm if the sales process is allowed to proceed while the appeal is argued.
But Dodgers attorney James Johnston argued that Fox's appeal was not properly before Stark because the bankruptcy court order approving the sale process was not a final order. Even if the appeal is properly before the district court, Fox has not met the criteria for an emergency stay pending resolution of the appeal, Johnston added.
But Stark wondered whether the determination by U.S. Bankruptcy Judge Kevin Gross that certain provisions of Fox's existing contract with the Dodgers were unenforceable in bankruptcy raised a purely legal question justifying an interlocutory appeal to the district court, even if the bankruptcy court's order is not considered final.
Stark gave no indication on when he would rule on Fox's request for the emergency stay.
But attorneys for the Dodgers and the team's creditors committee warned Stark that if he granted the stay, it 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.
"The timetable is just too tight," Johnston said.
Johnston also argued that Fox will not be harmed if the stay is denied because the only thing that will happen between now and the Jan. 12 hearing is that Fox and the Dodgers will be trying to negotiate a new television rights deal for games starting in 2014.
The existing contract gives Fox an exclusive 45-day period starting in October 2012 to try to negotiate a contract extension with the Dodgers. During that time, the Dodgers are prohibited from talking to other parties before Nov. 30 of next year.
The sales process approved by Gross 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.
"They're going to take whatever is negotiated and shop it around," Steege said.
In his order, Gross also said "no-shop" provisions in the existing contract were unenforceable in bankruptcy. The provisions prevent the Dodgers from talking to third parties before Nov. 30, 2012, and give Fox a limited right of first refusal on competing offers received after that date.
Steege told Stark that Gross exceeded his authority, arguing that the bankruptcy judge effectively rewrote the contract between Fox and the Dodgers.
"The bankruptcy court substituted new contractual terms unilaterally proposed by the Dodgers without the consent of Fox Sports," she said. "... Courts cannot rewrite contracts for the parties."
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.
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