How would a High Court Judge in London handle the legal dispute between Liverpool FC and its erstwhile owners, Tom Hicks and George Gillett? Here's one jurist's prediction:Hicks and Gillett have no case.The sale will go through, and Hicks and Gillett will be gone, but not forgotten.
I am a lifelong Liverpool fan. I am also a trial court judge, in the Detroit area. I won election in 2002, and have handled criminal, civil and domestic matters ever since. And while I may actually know more about soccer than I do about law, I do have some familiarity with the type of issues that are at hand in the Liverpool saga. Accordingly, here's how next week's hearing might play out were I presiding at the high court in London:
BAILIFF: All rise. The Honorable Matthew S. Switalski now presiding, by special appointment from the Lord Chancellor. Please be seated.
COURT: Good morning, counsel. Please state your appearances for the record.
LFC COUNSEL: May it please the Court, Horace Rumpole, from Slaughter & May on behalf of Liverpool FC.
HICKS & GILLETT: May it please the Court, Claude Erskine-Brown, from Dewey, Cheatham & Howe on behalf of the owners, Tom Hicks and George Gillett.
COURT: Thank you, counsel. Mr. Rumpole, you may proceed on behalf of Liverpool.
H&G: Excuse me, your Honor, but.......why is an American jurist hearing this case?
COURT: Well, I happened to be vacationing in London, and the Lord Chancellor contacted me and requested I handle this matter because all the other judges are busy.
H&G: Busy with what?
COURT: They're all hearing super injunction requests from England internationals.
H&G: That makes sense, we have no objection.
COURT: Proceed, Mr. Rumpole.
LFC: If your Lordship pleases. I appear on behalf of Martin Broughton, chairman of Liverpool Football Club. The issue is simple. I ask that the Court issue a declaratory judgment in favor of Liverpool, finding that the majority of the board had the authority to approve a sale of the club.
COURT: Counsel for Hicks & Gillett, do you agree that is the issue?
H&G: Yes, your honor.
COURT: Then I have some questions. First, Mr. Rumpole, if Mr. Hicks and Mr. Gillett own the club, then how is it that they find themselves in the minority on the board?
LFC: Excellent question, my Lord. Because they don't really own the club any more, they haven't since April of this year. This was a leveraged buyout. The Americans borrowed 237m from the Royal Bank of Scotland. That loan had to be repaid in April 2010. H&G didn't have the ability to repay the loan. The Bank could have repossessed the club at that time. But RBS made a deal instead. RBS agreed to extend the repayment date for 6 months, to this October. In return, RBS told H&G they had to sell the club. Since H&G's credibility was at low ebb, RBS insisted that they have their own man at the helm, someone they trust, who would be looking out for the interests of the creditor. That man is Martin Broughton. And it was ordered at that time that Mr. Broughton was the only person who could change the composition of the board and that H&G could do nothing to frustrate any attempt to consumate a reasonable sale of the club.
H&G: But we own the club. Why can RBS dictate terms to us?
LFC: They have 237m reasons, my Lord.
COURT: Be civil, Mr. Rumpole.
LFC: If your Lordship pleases.
COURT: Mr. Rumpole, if I'm hearing you right, then the reality is that RBS really did repossess the club in April, and that H&G are owners in name only. Further, that Mr. Broughton is functioning essentially as a Receiver, just like in any other civil litigation, where the secured creditor faces a debtor who is behind on payment and the creditor doesn't trust the debtor to preserve the value of the asset. When you think about it, this is really no different than a foreclosure. H&G have had 6 months to redeem. And that's up on October 15th. You're not going to be able to repay that loan, correct?
H&G: Your Honor, we fully intend to repay that note by the 15th. We are negotiating with
several banks and hedge funds and we give you our word that we will be able to pay that obligation.
COURT: Did you wish to say something, Mr. Rumpole?
LFC: Yes, my Lord. We have a saying down the Old Bailey. Pull the other one sweetie. It's got bells on it.
COURT: That's uncalled for Mr. Rumpole........but I know what you mean. H&G, you don't deny that you committed to sell the club last April, do you?
H&G: No your Honor, we did. But a price of 300m grossly undervalues this asset. Liverpool FC is one of the 5 greatest football brands in the world. The only comparable ones are Real Madrid, Barcelona, Milan and Manchester Utd. The fair value price is 800m. By voting for a sale price of 300m, Mr. Broughton and the other 2 directors violated their duty to get the best price possible.
COURT: Let's talk about that. There's no question about the pedigree of the club. I think I'd add Bayern Munich to your list, but I'll tell you, I was in South Africa for the World Cup. I saw more Liverpool jerseys than any others. It was stunning. But just because it's one of the greatest clubs in the world doesn't make it any different from any other asset that needs to be sold. When a couple get divorced, they generally need to sell the house. They rarely agree on the listing price. The wife knows it is worth $500,000. The husband just wants it sold so he can stop the bleeding. He's happy to get what he owes and move on. The thing is, it doesn't need to be a hypothetical debate. You order a sale, and the fair market value is whatever price someone is willing to pay. Now if both parties agree that the price should be higher and can agree to wait for a market correction, than that's fine. But you don't have that luxury here. RBS doesn't want to carry you any more. Now, where do you get the idea that the club is worth 800m in this market?
H&G: My Lord, Forbes Magazine appraised the club @ 800m earlier this year. There's no more respected business journal in the world.
LFC: Will they be paying cash or cheque, my Lord? We have another saying round the Old Bailey.........
COURT: Save it, Mr. Rumpole. Judge Bullingham warned me about you.
LFC: How is the Old Darling? You're right, my Lord. I'll try to behave.
COURT: Look, the 800m figure is an estimate, an opinion, and they all sound plausible on paper. But the thing about the market is it can be unforgiving towards allegedly sound theories and estimates. Your illiquid asset is only worth what someone is willing to pay for it at any given time. Life is about timing. Yours, like Bear Stearns, Lehman Brothers and AIG's is bad. When you're highly leveraged, you don't have the luxury of waiting for the market to correct itself. You are forced to get out now. And everyone knows it. So the only issue is whether Mr. Broughton did all he reasonably could to get the best price he could. Mr. Rumpole, what do you say in regard to that?
LFC: My Lord, like you said, Liverpool is one of the top 5 brands on the planet, in the most popular sport in the world. Everyone knows this club, and everyone knows it is for sale. So I don't think anyone can argue they didn't know we were looking to sell. The owners have always been allowed to produce a buyer -- it hasn't happened. There were several poseurs who talked a big game in the media, but were frauds. NESV and John Henry did it right. They kept it quiet. Mr. Broughton met with them in Boston and in Liverpool. They did their due diligence. And 300m is a fair price in this environment for this club. 300m, for all intents and purposes, wipes out the acquisition debt. Liverpool is a highly profitable club; it's the acquisition debt and the interest payments on it that have been killing the club.
COURT: Actually, it's the fact that Liverpool haven't developed a player since Steven Gerrard. It's never been the money. It's the fact that the well has gone dry. Continue.
LFC: I agree my Lord. But a sale price of 300m wipes out the debt and gives the club the ability to move forward.
COURT: Look, there's no question it's in the best interest of the club.
H&G: But this sale would still leave us owing approximately 100m to creditors. Your Honor, you can't let them do this.
COURT: What do you want me to do? Clearly, RSB brought down the hammer in April. People
have never understood the import of that. Broughton was not brought in as a patsy. He came in to sell the club. Unless the price was 800m, you were never going to agree to it. Does it make sense to anyone that RBS sent Broughton into battle with an unloaded water pistol? No, he was given a full metal jacket. And the process produces the right answer. This is the capitalist system, the free market. Fair doesn't enter into it. Andgiven what's gone on during your tenure, I'm not sure you want to have that conversation anyway. Given that this was a leveraged buyout, your theory had to be that the value of the club would appreciate significantly. Part of that appreciation would have been based upon building the new stadium. But that never happened, and now the team isn't even in the Champions League. And there's no private TV contract. Given that you paid 219m in 2007, what exactly has happened since then to raise the value of the club? It's a rhetorical question. Nothing has happened. So I find that Mr. Broughton acted within his rights and that the sale is reasonable. I'll tell you another reason it's a fair price. If I denied Mr. Broughton's request, then H&G would miss the October 15 deadline, RBS would formally repossess the club, and would then have the right to sell the club to NESV and H&G's equity in the club would be wiped out anyway. But if it comes to that, then the club probably get hit with a 9 point deduction and NESV would be fools if they didn't seek a reduction in purchase price. That's why the Premier League has already signed onto the deal. So given that there's no plan B for H&G anyway, I guess I don't even understand why we're here. What's that, Mr. Rumpole?
LFC: It's called a shakedown, my Lord. A smash and grab. A petty attempt to get some greenmail from the club or NESV in order to go away quietly.
COURT: Did you discuss settlement?
LFC: My Lord, I gave H&G's lawyers the same answer Michael Corleone gave Senator Geary.
Our offer was nothing, not even my legal fees, which we would appreciate if H&G would pay on our behalf.
COURT: Well, H&G went from having too much leverage, to having none. Funny old world, isn't it? Mr. Rumpole, your motion to approve Mr. Broughton's actions and to obtain a declaratory judgment approving the actions of the Board is granted.
H&G: Your Honor, with all due respect, we will appeal.
COURT: You are free to do that. However, given that an appeal may frustrate the sale and
prejudice the club, I believe an appeal bond is in order. Mr. Rumpole, what do you suggest?
LFC: 100m cash or surety my Lord.
H&G: Your Honor, we can't raise that type of security on such short notice.
COURT: But you're going to refinance before October 15th?
MARTIN BROUGHTON: Mr. Rumpole, what did he say?
RUMPOLE: The judge just made a funny.
COURT: It's 100m cash bond or surety for the appeal. Otherwise it can't be filed. Gentlemen,good day. Oh, Mr. Rumpole, would you approach, please?
RUMPOLE: Yes, my Lord.
COURT: Do you know anywhere I can get a drink?
RUMPOLE: Pomeroy's, my Lord. Chateau Thames Embankment. I thought you'd never ask.......
Matt Switalski is a 16th Circuit Court Judge in Macomb County, Michigan. More importantly, he's been a Liverpool fan since he was 8 years old. It is his fervent hope that Hicks and Gillett soonwalk alone.
Matt is also a 16th Circuit Court Judge in Macomb County, Michigan and is the managing editor of
World Soccer USA. He appeared as a guest on World Football Daily on October 11 to analyze the legal battle for Liverpool FC.
World Football Daily
