Sterling v. Sterling Part 3: What Did Shelly Sterling Actually File?

Hi everybody! Hi, Dr. Nick! This is TwistNHook, from CaliforniaGoldenBlogs, SBNation's Cal site. I've been writing some posts on the Sterling Trust matter as it happens to fall in line with my professional expertise.

In the first post, I looked at Trusts in general and laid out the issues here.  In my second post, I looked at the facts and law surrounding the key issue here. The key issue is whether Donald Sterling lacks mental capacity to act as Trustee of the Trust. If so, then Shelly Sterling has the unilateral authority to sell the Clippers. If not, then he still can act as Trustee and block the sale.

So, that brings us to this third post: What did Shelly *actually* file?  There is a 157 page PDF available here that has all of the initial filings. The documents are actually out of order, so I'm going to start with the most important ones and go from there.

The most important document is the actual Petition (starting on page 23 of the PDF), so let's look at that first. But before we get there, let's TL;DR you.

The TL; DR version of this post: Shelly Sterling is bringing a lawsuit to ask the Court to confirm her removal of Donald Sterling and her sale of the Clippers. Additionally, she wants an Order from the Court authorizing the sale to move forward even if there is an appeal.

Now, let's get to the document.

Ex-Parte Petition (1) For Confirmation Of Trustee's Acts And Instructing Trustee And (2) For Order Directing Trustee Under Probate Code 1310(b) To Prevent Injury Or Loss To Trust

That is the specific name of what Shelly Sterling filed.  Note that this Petition is an Ex-Parte Petition. That means that Shelly Sterling did not want to have to wait the normal filing time period for a hearing. If you file a matter with the Court, you'll get a hearing set out some amount of time. I do not know what the LA County backlog is nowadays. Several years ago, I actually did have a matter set in LA County and I found that their backlog was rather lengthy. You might get a hearing date months and months out. They do not have time to wait months and months on this.

So, to avoid having to wait months, they filed it Ex-Parte meaning it can be heard the same day. You have to justify the "emergency" nature of it, which they did by filing some Declarations that I will get to later..

Shelly Sterling is filing this pursuant to California Probate Code 17200 (yes, Business lawyers, we have a 17200, too!). This section allows a Trustee to file a petition on a wide variety of matters, including

(5) Settling the accounts and passing upon the acts of the trustee, including the exercise of discretionary powers.

(6) Instructing the trustee.

So, here, Shelly Sterling basically wants the Court's blessing in actions she has taken and the Court's instructions on how to act as Trustee. She wants the Court's blessing on her removal of Donald Sterling as Trustee and she wants a specific Order instructing her to sell the Clippers. That way Donald Sterling (or anybody else) cannot stop the sale (unless he appeals, more on that later).

First, the Ex-Parte Petition provides the background information on the sale. They have the information regarding the Term Sheet (and attach a copy of the Term Sheet as Exhibit A). They note that the NBA has set a deadline of 9.15.14 to sell the team or else they'll seize the team and sell it.

Then, the document goes through the information on the Trust, including the language on incapacity and the medical evaluations that reflect Donald Sterling's lack of mental capacity. They note that on May 29, 2014, Shelly Sterling sent Donald Sterling a notice of his removal as Trustee. Oh, to be a fly on the wall when Donald Sterling got that information!

Then, the document notes that a term of sale is either Donald Sterling signs off or they get a Court Order confirming the sale. Thus, since Donald Sterling is rattling his sabre here, Shelly Sterling has no choice but to go to Court.

The next section is a rather lengthy recap of all the audio recordings shenanigans. The point of this is to argue that if Shelly Sterling does not sell the Clippers, then the NBA will at a much lesser price. Thus, the document argues, the Court needs to confirm the sale here to help maximize the sale proceeds. Any Trustee has a legal responsibility to maximize the value of the assets and if Donald Sterling is able to block the sale, then it will harm the beneficiaries by receiving less money. Therefore, the sale now is in the best interest of the Trust and it would be a breach of the Trustee's fiduciary duty to the beneficiaries to not sell it.

California Probate Code 1310  - Appeals

Next, Shelly Sterling provides an argument about Cal Probate Code 1310. What does 1310 say and why is it relevant? This argument is designed to block any appeal by Donald Sterling (which is 100% anticipated if he loses). Cal Probate Code 1310(a) says that if an appeal occurs, it stays (i.e. stops) all action pursuant to the Order.

1310. (a) Except as provided in subdivisions (b), (c), (d), and (e), an appeal pursuant to Chapter 1 (commencing with Section 1300) stays the operation and effect of the judgment or order.

So, here, if the Court confirms the actions of Shelly Sterling and orders the sale, this section would stop the sale were Donald Sterling to appeal. Cal Probate Code 1310(b) specifically provides an exemption to this stay.

(b) Notwithstanding that an appeal is taken from the judgment or order, for the purpose of preventing injury or loss to a person or property, the trial court may direct the exercise of the powers of the fiduciary, or may appoint a temporary guardian or conservator of the person or estate, or both, or a special administrator or temporary trustee, to exercise the powers, from time to time, as if no appeal were pending. All acts of the fiduciary pursuant to the directions of the court made under this subdivision are valid, irrespective of the result of the appeal. An appeal of the directions made by the court under this subdivision shall not stay these directions.

So, part 1 of the Petition is to get the Court to Order the sale. Part 2 of the Petition is to get an Order ensuring the sale continues even if there is an appeal.

Attempted Revocation

Finally, the Petition turns to the attempted revocation of the Trust by Donald Sterling. As I noted previously, Shelly Sterling attempted to remove Donald Sterling on May 29, 2014. On June 9, 2014, he responded by revoking the Trust. When somebody revokes a Trust, the Trustee is supposed to return all assets back to the original owners (i.e. here Donald and Shelly Sterling). That means that the Clippers would be removed from the Trust itself and returned 50% to Shelly Sterling and 50% to Donald Sterling as their community property. Once Donald Sterling receives his 50% share of the Clippers, he can block the sale.

Basically, it was a technical attempt to stop all this by getting the Clippers out of the Trust and invalidating the removal of Donald Sterling as Trustee. In response to this, the Petition argues:

a)Donald Sterling lacked capacity to understand what he was signing when he signed this document, so it is not a valid document

and/or

b)The contract to Ballmer was legally binding at the time of the June 9, 2014 alleged revocation. If Donald Sterling *did* have capacity to revoke the Trust, the Trustee of the Trust needs to retain, at the very least, the Clippers in the Trust to ensure that the sale is fully consummated. If the Trust does not fulfill the sale, it will breach the sales agreement and unnecessarily create liabilities in the Trust, which is not in the Trust's best interest.

Then, there are like 100 pages of attachments, including the Term Sheet for the sale, the Trust in its entirety, the doctor's evaluations, the notice of removal by Shelly Sterling, the notice of revocation by Donald Sterling, and a lot of printed out copies of internet stories (with comments!) about the Donald Sterling audio recordings story.

On the first page of the Ex-Parte Petition, somebody wrote "OK to file and set for 7.7.14 at 8:30 in D-5." According to this ESPN story,the Judge denied the immediate relief after Donald Sterling objected and set a trial starting on July 7.

The court denied Shelly Sterling's request for relief. However, according to the ruling obtained by ESPN, "... given the upcoming deadlines regarding the proposed acquisition of the Los Angeles Clippers, the Court, on its own motion, sets the matter on shortened notice for a contested evidentiary hearing" before Judge Michael Levanas. A trial conference, where a list of witnesses will be submitted, is set for June 23.

Conclusion

There are three other documents filed with the Ex-Parte Petition, one by Shelly Sterling, one by a NBA Executive, and one by Shelly Sterling's attorney. They basically all argue for the emergency nature of the relief to justify why it had to be brought Ex-Parte. The Attorney Declaration provides the emails to Donald Sterling's emails alerting them to this Ex-Parte Application.  They are not that important in the scheme of things.

Bottom line here is that Shelly Sterling is requesting court confirmation of her actions of removing Donald Sterling and unilaterally selling the Clippers.  She also wants an order ensuring the sale goes through in the event of an appeal by Sterling.  The document even envisions him taking this to the Supreme Court!  The trial is just a few weeks away, so we'll see what happens here very soon.  Thanks!

What are your thoughts on the documents?  Leave your thoughts in the comments section and GO BEARS!