How Miami Could Still Get Its Money from Jeffrey Loria

In 2009, the City of Miami and County of Miami-Dade agreed to pay for 75% of a new stadium for Jeffrey Loria’s Miami Marlins. The projected stadium cost was $645 million, so Miami and Miami-Dade — or, more technically, Miami and Miami-Dade taxpayers — agreed to cover up to $480 million of stadium-building costs, largely from from hotel taxes. (According to some reports, Miami and Miami-Dade ended up paying about $347 million.) Miami and Miami-Dade also agreed not to receive any of the money from the stadium at all. No money from ticket sales, no money for concessions or naming rights. All Miami and Miami-Dade got in return was a guarantee that, if Jeffrey Loria sold the team, they would get a percentage of the net sale proceeds.

In October 2017, Jeffrey Loria did sell the Miami Marlins — for $1.2 billion. Under the terms of that stadium deal, Miami and Miami-Dade are entitled to 5% of the net sale proceeds. So good news for Miami and Miami-Dade, right? Well, not this time: Loria has told them he actually lost money on the sale of the team. So despite that gaudy list price, Miami and Miami-Dade stand to get nothing at all.

On the surface, Loria’s claim seems pretty implausible. After all, he bought the then-Florida Marlins in 2002 for $158 million, $38 million of which was a loan from Major League Baseball. Even after accounting for paying back the loan, that’s still a difference of over a billion dollars. Remember, though, that according to the stadium deal, Miami and Miami Dade agreed to receive 5% of the net proceeds (i.e. profits), not gross proceeds (i.e. the sale price), in the event of a sale.

Jeffrey Loria’s lawyers and accountants prepared a summary that is supposed to explain how Loria lost money on the Marlins’ sale. According to that document, the gross proceeds of the sale – in other words, the money received before taxes and expenses are paid – was $1.128 billion. But Loria says that the Marlins had about $280 million in debt, taxes on the sale of $297 million, and $33 million paid to financial advisors who managed the sale. All in all, the summary says that Loria lost over $140 million on the sale.

Naturally, this has not been received well in Miami. Under the stadium contract, Miami has 30 days to decide how to respond to Loria’s claim of no profits, and some city officials are threatening a lawsuit against Loria. But the problem for Miami is precisely for what it would sue Loria, because a suit for money damages would have a lot of problems.

Here are three of them:

1. Even if Miami and Miami-Dade were entitled to 5% of the whole $1.2 billion – and they aren’t entitled to even that much under the contract – they would still be receiving only $60 million. So even a best case scenario for Miami and Miami-Dade would end up with taxpayers getting about 12.5% of their investment back.
2. The stadium contract also has an arbitration clause. An arbitration clause is language that says that disputes get resolved in arbitration and not a lawsuit. There are ways around that, but it’s possible that a lawsuit by Miami for money damages might not even be allowed in court.
3. The single biggest question here is the accuracy of Loria’s listed value of the Marlins. The taxes are easily provable, and the transaction costs should all be supportable, as well. But the value of the franchise is more subjective, determined by appraisals and accountants. Miami and Miami-Dade would have to prove that the franchise is worth more than $940 million. In court, that’s what’s known as a “battle of the experts”: each side hires an expert witness (or multiple experts) who will testify to their opinion of the value of the franchise. Experts are expensive, which would just cost Miami taxpayers more money. And if the experts are equally credible, Miami loses, because the party who sues has to prove its case.

There are, in short, a number of unknowns that would accompany a lawsuit solely aimed at money damages. That’s probably why, when asked about taking legal action against Loria, Miami mayor Francis Suarez cited the need to “close this chapter” of Marlins history.

Suarez has a point. That said, there might be another option Miami and Miami-Dade could pursue here, and one which I think makes a lot of sense.

There are two main types of lawsuit. In the kind most people imagine, one person sues another person for money damages. But in a second, less-well-known kind, a person can sue another person in order to ask the court to order that person to do, or not do, a specific act. It’s called “equitable relief,” and there are many different kinds. One type of equitable relief I think the Marlins could pursue here is called an “accounting.”

An accounting is a special type of lawsuit in which the court orders the defendant to “account” (hence the name) for all monies spent on a given thing. Under Florida law, an accounting can be available in cases of complex business transactions, and the $1.2 billion sale of an MLB franchise would certainly qualify as a complex transaction. And in a case called Cassedy v. Alland Invs. Corp, the Florida Court of Appeal explained that, under Florida law, once a plaintiff proves a right to an accounting, it becomes the defendant’s responsibility to prove that he didn’t mishandle the money. Moreover, if the defendant didn’t keep accurate or detailed records, Florida law presumes the money was mishandled.

So if Miami brought an accounting case against Loria, theoretically the city could require him to back up all of his numbers in a way that would pass court muster. In essence, Loria would have to prove to the court’s satisfaction that he really did lose the monies he said he lost on the sale of the team and that his loss of the monies was reasonable. Otherwise, Miami and Miami-Dade could be entitled to money back.

Another reason an accounting suit makes more sense than a lawsuit for money damages is because, right now, $50 million of the sale proceeds is still sitting in an escrow account. At this point, Loria, the Jeter/Sherman group which bought the Marlins, Miami-Dade, and the financial advisors on the sale transaction, all have a right to claim some or all of those monies. Loria has already said that he’s entitled to receive that money, too, because he lost so much money on the sale. But a court in an accounting case can order escrowed funds frozen pending the outcome of the accounting, which means that there could be at least some money available to Miami and Miami-Dade if they win the case. It’s an option that probably wouldn’t be available in a lawsuit for only money damages.

Miami and Miami-Dade may ultimately decide to cut their losses and walk away. But this is one way they might be able to get some money back.