Tuesday, June 10, 2014

Fiduciary Duty Issue in the Sale of the Los Angeles Clippers?

Many of you have undoubtedly followed the ongoing saga of Donald Sterling and the Los Angeles Clippers. (If you live in the U.S. and you're unaware of the story, you have undoubtedly been backpacking in some remote mountain region for the last few weeks.) The NBA ordered the Clippers sold. Donald said no. Rochelle Sterling, Donald's wife, acting on behalf of the trust that actually controls the Clippers, has agreed to sell the team to Steve Ballmer, the former CEO of Microsoft for $2 billion. Depending on the hour, Donald either approves or is contesting that sale.

A New York Times story today adds an interesting angle. The Times reports that the deal with Ballmer grants Ms. Sterling "owner emeritus" status, entitling her to two floor seats for each home game, five stadium parking spaces, and three championship rings if the Clippers ever win an NBA title.

I know nothing about the Sterling trust other than what's been reported in the media, but that seems to raise an obvious fiduciary duty issue. In negotiating the sale, Ms. Sterling is acting as trustee of the trust and owes a duty of loyalty to the trust. Her duty is to consider only what's best for the trust and obtain the highest possible value for the trust. But these perks, if the Times story is correct, are personal benefits to her. That seems like an obvious conflict of interest.

Of course, it's a $2 billion deal, and the value of these perks pales in comparison. (How much can the right to a hypothetical Clippers championship ring be worth?) But, at a minimum, shouldn't those benefits belong to the trust rather than to Ms. Sterling?


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