Does Donald Sterling Have To Approve The Sale Of The Clippers? Apparently not.
In my last post, I wrote that getting the approval of Donald Sterling was the big hurdle to the sale of the Clippers to former Microsoft CEO Steve Ballmer for $2 billion. It appears that I wrote too soon (danger of blogging). Shelly Sterling (Donald's estranged wife) and her attorneys claim that she has the authority to sell the team without Donald's approval. According to her press release, "Shelly Sterling was acting under her authority as the sole trustee of The Sterling Family Trust which owns the Clippers." Shelly Sterling contends that she became the "sole trustee" when Donald Sterling was recently declared incapacitated by "experts" under the terms of the Sterling Family Trust. Donald Sterling's attorneys have already publicly stated that his approval is required, and he is not giving it.
The Process Of Determining Incapacity
Who is right? It is hard to say without reading the terms of the Sterling Family Trust, which are not publicly available. Based upon my experience litigating other high-stakes incapacity issues, this could turn into a whole new round of litigation if Donald Sterling wants to fight. Neurologists and psychologists often disagree about whether an individual is incapacitated and even about which tests are appropriate to determine incapacity.
The first question is the standard for determining incapacity. Under California law (which may have been supplanted by the terms of the Sterling Family Trust), there is a presumption that "that all persons have the capacity to make decisions and to be responsible for their acts or decisions." The determination of incapacity is not global, but rather based upon an evaluation of whether Donald Sterling has the capacity to make the particular decision at issue - whether to sell the Clippers for $2 billion. California law sets forth 4 factors (with 11 sub factors) to be considered in making a determination of incapacity.
The Sterling Family Trust, however, may have set forth a different test for detraining incapacity. As a private contract, the Trust agreement could set forth any standard for the removal of Donald Sterling (or Shelly Sterling) as a trustee. The Trust agreement may specify the particular experts to make the determination, or the process by which to select the experts or the particular tests to be used to evaluate capacity.
Whatever process was followed here to determine Donald Sterling's mental capacity, Shelly Sterling (and her attorneys at Greenberg Glusker) reported that Donald Sterling failed the test.
If Donald Sterling Is Incapacitated, Shelly Sterling Can Sell The Team Without His Approval
If Donald Sterling was validly determined to be without capacity to serve as a co-trustee of the Sterling Family Trust, then Shelly Sterling would have the authority to act to sell the team with the approval of the NBA. Under the Article 5 of the NBA Constitution, a change in the trustees of a trust that owns a team is treated as a transfer of team ownership, which must be approved by the league. NBA Commissioner Adam Silver has repeatedly stated that his preference was for the team to be sold to a third party before the June 3 hearing to terminate current Clippers ownership. It is safe to say that the NBA would give its approval to Shelly Sterling becoming the sole trustee of the Sterling Family Trust for the purpose of facilitating a sale for $2 billion to Steve Ballmer.
If Donald Sterling Wants To Fight, Whom & Where Does He Fight
If Donald Sterling wants to fight this attempted sale, his opponent would be his wife Shelly and the trustee of the Sterling Family Trust, not the NBA. His lawyers would have to go into whatever court was designated in the Trust Agreement and contend that there has been a violation. If they wanted to prevent the sale of the team, they likely would have to file an emergency application for a TRO (temporary restraining order) to prevent the sale from closing.
Sterling's attorneys might attempt to drag the NBA and its 29 other owners into the lawsuit under a theory called "tortious interference with contract." The suit would contend that the NBA (and its owners) took improper action in order to prod Shelly Sterling into violating the terms of the Sterling Family Trust.
Bottom Line - Sterling Is Likely Out Without His Approval
Although it is impossible to know without reading the Sterling Family Trust, I expect that the legal team at Greenberg Glusker (one of LA's leading law firms) has anticipated the possibility of a fight from Donald Sterling and acted to dot every i and cross every t. It seems highly unlikely that they would have taken the risk of declaring that Donald Sterling was removed as co-trustee of the Sterling Family Trust unless they were confident that they would prevail in an eventual litigation.