Jim Balsillie's all-or-nothing proposition to move the Phoenix Coyotes got a boost yesterday when a straight-talking bankruptcy judge ordered the issue of who controls the team to mediation and then said he will decide next month if the team can be moved to Hamilton.
Judge Redfield T. Baum's decision sets the stage for a hearing on June 22 to decide whether Mr. Balsillie - or any other potential buyer - can move the franchise as part of an agreement to purchase the team.
Mr. Balsillie has made a $212.5-million (U.S.) bid to purchase the team from Jerry Moyes, with the condition that he be allowed to move it to Southern Ontario. Both the Balsillie camp and the NHL expressed confidence the judge will rule in their favour on the issue of who is in charge of the team. They also had a rare moment of agreement - each side saying the relocation issue is the key matter in the bankruptcy case of the Coyotes.
"Better," replied Mr. Balsillie's Toronto lawyer, Richard Rodier, when asked how he felt about the chances of the Coyotes coming to Hamilton in the wake of the judge's ruling.
Mr. Balsillie, the co-CEO of Research In Motion, has been pursuing a NHL franchise for years. He was previously rebuffed by the league in attempts to buy and move the Pittsburgh Penguins and Nashville Predators to Southern Ontario.
Bill Daly, the deputy commissioner of the NHL, said he was confident "decades of court rulings" will mean Judge Baum - who started yesterday's hearing saying he did not want to rule on the relocation issue - will uphold the NHL's contention that only it can decide where teams are located and that all Mr. Moyes has the right to sell is a team that plays hockey in Arizona.
"The biggest issue is, is this a mobile asset and we have to decide that before we have an auction," Mr. Daly said. "I'm confident in the court's ability to decide the issue. Many courts have decided the issue over many years and sports leagues have always maintained the ability to control the locations of their franchises. I don't expect anything different here."
The NHL also got some legal backing yesterday from the National Football League, National Basketball Association and Major League Baseball. The leagues filed a joint motion backing the NHL on the issues it has raised about club relocation and asking for permission to participate in the hearings on the issue.
The hearing was originally called to decide who had control of the Coyotes. The NHL argued Mr. Moyes has no right to put the team into bankruptcy and sell it to Mr. Balsillie because he signed over control last Nov. 14 in exchange for financial help from the NHL.
Mr. Moyes countered that all he signed over to the league in the two proxy agreements were voting rights, not ownership and management rights.
It appears Judge Baum will make his decision quickly. He set a date of June 12 for written briefs to be filed with the court, giving himself 10 days to read them, before a hearing on the relocation issue set for June 22.
He spent much time admonishing the NHL and its lawyers for the length of their legal filings and the turgid language in their proxy agreements.
"I'm an old guy who has vague memories of someone with a yardstick talking about run-on sentences," he said. The court session took a dramatic turn late in the day when the NHL asked the judge to decide the relocation issue immediately. By the end of the day, lawyers for Mr. Moyes and Mr. Balsillie agreed, although they asked for more time to prepare written arguments, which was granted.
"We need to know what is for sale and that means the relocation issue," NHL lawyer Tony Clark told the judge. "We want you to decide that issue and, with respect, handle it now."
Earlier, the judge said he thought it "would chill" any potential bidders if it was not decided by the court if the new owner could move the team. But he chided the Phoenix lawyer who represented Mr. Balsillie in court, Susan Freeman, for not making a formal application to the NHL to move the team.
The judge argued it was hard for Mr. Balsillie and Mr. Moyes to make the case that the NHL was unreasonably blocking their attempts to take over the team and move it if there had been no application to the league to do so.
When Ms. Freeman suggested NHL commissioner Gary Bettman was steadfastly opposed to approving a Balsillie bid, Judge Baum reminded her that decision is made by the board of governors.
Last night Mr. Balsillie issued a statement saying he respected the judge's decisions.
"But let's be clear, I am moving forward," he said. "I have tabled a comprehensive and attractive offer. I will also be filing formal applications to the NHL both for transfer of ownership and for relocation to Southern Ontario to my chosen Hamilton Copps Coliseum venue. I am being open and transparent about this as I've been from the beginning. My Hamilton proposal, drawing on the world's best hockey fans located in the fourth largest urban region in North America, meets all the conditions for a successful NHL franchise."
The two sides spent the first half of the proceeding yesterday arguing over whether Mr. Moyes had the right to put the team into bankruptcy court and sell it to Mr. Balsillie.
The NHL argued that Mr. Moyes was no longer in control of the team by virtue of signing away proxy voting rights when the NHL agreed to fund the team starting in mid-November.
But the judge pointed out several instances where the NHL seemed to be acknowledging Mr. Moyes was in control of the team, such as asking his permission to review the team's books and records.
"If you were in complete control would you need consent of the Moyes group to review the books and records?" asked the judge. "That doesn't sound like someone who is in complete control."
Judge Baum grew frustrated by a debate he suggested repeatedly was using up too much time and energy of the participants to no interest of the team's creditors.
"I can see everyone has put a lot of time and resources over deciding who had their hand on the steering wheel of a car that will be sold in the next 60 days."
In the end, Judge Baum ordered the two sides to seek mediation on the issue and report back on May 27th. If the two sides are not making progress on a resolution at that time, an outcome that seems very likely, the judge will have to make a ruling on the issue.
The Coyotes seem to have the upper hand there," said University of Illinois bankruptcy scholar Charles Tabb. "It seems that if the judge agreed with the league's control question, as a matter of law, then he should have just ruled for the league on that point, because that ends the case from Moyes's side. The bankruptcy filing would then be defective and the league could decide to carry on the bankruptcy or not. So it would seem that by sending the parties off to mediate, the judge must be inclined in favour of Mr. Moyes on the control question. Surely the league is smart enough to figure that out as well."
One question left unanswered is what will become of the Coyotes if Mr. Balsillie's bid fails in late June and the team needs an owner to take it over in Glendale for the 2009-10 season.
A representative of the City of Glendale claimed there were several bidders willing to take over the Coyotes with the belief they can be profitable. But Mr. Daly expressed concern that the team's position in the Phoenix market had deteriorated since the Coyotes entered Chapter 11 bankruptcy protection on May 5th.
It was recited in court that since that time, the team had sold only $20,000 in tickets for next season compared to $1.5-million leading up to that time.
"You heard our lawyers state statistics in respect to what the business has been since the bankruptcy filing," Mr. Daly said." It's not a pretty thing."