Kallas Remarks by Steve Kallas – Before a packed courtroom in federal district court in lower Manhattan this morning, Judge Jed Rakoff announced that the parties had reached a settlement in the case of Picard v. Katz et al. The crux of the decision is that the Wilpon/Katz defendants agreed to pay the trustee $162 million, but, on the “willful blindness” claim of $303 million that was supposed to be tried beginning today, the Wilpon/Katz group will have to pay nothing.
Any way you look at this, it’s a big win for the defendants.
WHY $162 MILLION AND HOW MUCH OF IT WILL THE WILPON/KATZ GROUP HAVE TO ACTUALLY PAY?
The answer to the first question is easy: the $162 million is the six-year lookback period for “fictitious profits” that the defendants took out from 2002 until the Madoff bankruptcy in 2008. Judge Rakoff had ruled that the lookback period was only two years in this case and that the Wilpon/Katz group would have to pay up to $83 million. With this settlement, the trustee gets to go back six years rather than the two that Judge Rakoff had previously ruled in this case.
But even here there are some good things for the Wilpon/Katz group. First, the Wilpon/Katz group, with $178 million in “customer claims,” will be able to reduce the $162 million by any amount they recover in the bankruptcy. For example, if the Wilpon/Katz group recovers $100 million on their customer claims, a possibility, then there remaining liability will be $62 million. Plus, the Wilpon/Katz group, in the first three years of the agreed-upon five-year payment plan, will have to pay only monies recovered on the customer claims of the defendants to pay down the $162 million.
It won’t be until years four and five that the Wilpon/Katz group will have to pay anything out of pocket. Taking the example above, the remaining $62 million would be paid by the Wilpon/Katz group in equal parts: $31 million in year four and $31 million in year 5 (less any further customer claims recovered by the Wilpon/Katz defendants).
So the actual number that the Wilpon/Katz group will have to pay is yet to be determined but will probably be much less than the $162 million they settled for today. Indeed, Judge Rakoff said that, at least in theory, the Wilpon/Katz group could actually make $16 million on the deal (178 customer claims less 162 owed in the settlement), but that’s highly unlikely. In addition, Fred Wilpon and Saul Katz have agreed to guarantee payment for up $29 million dollars of the $162 million settlement amount if the customer claims don’t cover the settlement amount.
BUT HERE IS THE REAL WILPON/KATZ WIN
The real win comes with the result of what was supposed to be tried today: the $303 million in principal that was to be tried under a “willful blindness” theory. Here, the Wilpon/Katz defendants won a complete victory. Not only will they pay nothing on that claim, the settlement agreement has a specific paragraph in it that states that the trustee has reviewed the evidence “and will not pursue willful blindness claims against the defendants.”
Given that Fred Wilpon and Saul Katz vehemently denied those allegations from day one until today, that’s a complete and utter vindication for them concerning the claims made against them in what had remained in this lawsuit.
WHAT HAPPENS NEXT?
Well, there still has to be court approval of the settlement agreement. Judge Rakoff set April 13, 2012 as a date for the parties to reach some agreements and do some things that shouldn’t be hard to do. Judge Rakoff told former Governor Cuomo, who has mediated this case, to resolve any disputes. Once the agreement is finalized, Judge Rakoff will approve it and the five-year payment plan will begin.
While the trustee’s counsel correctly stated that the estate was able to gain an extra $79 million with this settlement, virtually any way you slice this, the big winners today were the Wilpon/Katz defendants.
© Copyright 2012 by Steve Kallas. All rights reserved.