Two heavyweights of the Houston business community, Jim Crane and Drayton McLane, were at their respective tables in the well of the courtroom as a panel of nine women and six men —12 jurors and three alternates — filed into the jury box in the Ceremonial Courtroom on the 17th floor of the Harris County Civil District Courthouse Thursday morning for the first day of testimony in a case where $440 million is at stake.
The parties expect the case will last three weeks. The jury is tasked with determining whether Crane and Houston Baseball Partners, the entity created to purchase the Houston Astros from McLane in 2011, were misled, or fraudulently induced, into buying the team and a stake in Houston Regional Sports Network at an inflated rate based on misrepresentations.
Crane bought the assets for $615 million and filed this lawsuit two years later.
Thomas M. Farrell of McGuireWoods, who represents Houston Baseball Partners, began his opening statement by wishing McLane, whom his client has accused of fraud, a happy birthday. McLane turned 89 on July 22.
“But this case is not about birthday cakes or candles or whether his grandchildren love him. I’m sure they do,” Ferrell said. “This case is about serious fraud.”
He told jurors his client will be asking them to award $440 million in damages for the fraudulent conduct that underpinned the deal.
Farrell reminded the jurors about the types of questions they were asked during voir dire, presumably by opposing counsel, regarding the importance of enforcing contracts as they are written. He said the questions left a lingering implication that “Jim Crane and his companies are too incompetent to put the terms of a deal in writing.”
The comment drew the first of six objections, accusing Farrell of making arguments during opening statements, from Paul Dobrowski of Dobrowski Stafford & Pierce, who represents McLane Champions, McLane’s company that managed the MLB team. After a brief conference at the bench in front of Harris County District Judge Sonya L. Aston, Farrell resumed his opening statements.
“The evidence will show the folks on this side of the table are competent business people,” he said, gesturing toward his client.
The trial is taking place in the Ceremonial Courtroom, which can accommodate more people than Judge Aston’s usual courtroom. On Thursday morning, the room was about half full with observers, but most did not return after a noon lunch break. At the opposite end of the hall from the large courtroom, floor-to-ceiling windows give visitors a prominent view of Daikin Park, where the Astros play just a few blocks away.
Farrell painted a picture for jurors of a baseball team with a losing record that was in financial distress that had lost more than $100 million, forcing McLane to mortgage assets, including the team’s “bats, balls, even the costume worn by Orbit.”
He said McLane, who bought the team in 1992, was looking for a way out of “a whopping big problem.”
“It was a desperate situation, and [McLane] desperately needed to find a way out,” Farrell said.
When Crane purchased the team and the media rights in 2011, Farrell said it was as if McLane and his team had “pulled a rabbit out of the hat.”
“He did it by committing fraud,” Farrell said, explaining his theory of the case was that McLane got the deal done by inflating the value of the stake in Houston Regional Sports Network, which Crane bought for $332 million.
The value was inflated, Farrell told jurors, by representing to Crane and Houston Baseball Partners that Comcast — an industry leader with expertise in the market — had determined companies like AT&T, DirecTV, Time Warner and others would pay $4.50 per household each month to carry HRSN.
“Here’s the problem: none of that was true,” Farrell said. “It was all a lie.”
Farrell told jurors that the evidence will show it was actually the Rockets and the Astros, partners in the HRSN, that came up with the $4.50 number and used it in a presentation back in January 2009.
Comcast filed an involuntary bankruptcy petition against HRSN on Sept. 27, 2013, and this lawsuit was filed by Houston Baseball Partners against McLane Champions on Nov. 21, 2013.
“Almost immediately, it became clear that $4.50 wasn’t real,” Farrell said.
Jurors were shown a document purporting to show the rates paid for other regional sports networks, including in San Francisco ($2.70), New York City ($2.50) and Chicago ($3.75).
Dobrowski told jurors he’s going to be asking them to enforce the terms of the purchase and sale agreement that transferred ownership of the team and the media stake from McLane to Crane “as written.”
The May 16, 2011, document, he said, “is binding and does not contain the alleged representation upon which this case is based.” There is no representation in that document, he said, that the $4.50 rate was a “market-clearing rate,” or that it came from Comcast.
And he said a Dec. 16, 2010, letter agreement between the parties has a disclaimer about the “accuracy or completeness” of evaluation materials, such as the Comcast pro forma at issue, and stated that there would be no liability stemming from the use of these evaluation materials.
The representations about the viability of the $4.50 rate, Dobrowski said, “were based on estimates.”
“Those were not guarantees,” he said. “They were assumptions.”
David Beck of Beck Redden, who represents McLane, also hit on that theme in his opening statements.
“Assumptions, projections, estimates — that’s where we have a fundamental dispute with the plaintiffs in this case,” he said. “They are treating those as guarantees.”
He also hit back on the idea advanced by Farrell that there was potentially a lack of respect for the acumen of the other side. The reality, he said, is the complete opposite, calling Crane a “skilled, sophisticated and aggressive businessman.”
He asked that jurors keep a few points in mind while they sit through weeks of testimony, including that “projections are projections” and that he believes the evidence will show Comcast “adopted and blessed” the $4.50 rate.
When Crane purchased the Astros in 2013, it was the second time he had tried to buy the team, Beck said, telling jurors about how the prior deal was nearly inked in October 2008.
The parties had even planned a 4 p.m. press conference to announce the transaction on Oct. 7, 2008, he said. But “five minutes before” that announcement was to be made, Crane backed out, Beck said.
“Why does that matter?” he asked the jury. “What he agreed to pay in 2008 was millions and millions more than he paid in 2011,” and he still “complained” and “wanted more.”
“And he’s still complaining,” Beck said.
Houston Baseball Partners is also represented by Charles B. Hampton of McGuireWoods and Ronald G. Franklin of Houston.
McLane Champions is also represented by Shane L. Kotlarsky and Jared A. McHazlett of Dobrowski Stafford & Pierce and Harris J. Huguenard of Jackson Walker.
McLane is also represented by Geoff Gannaway and Cassie Maneen of Beck Redden.
The case is Houston Baseball Partners v. McLane Champions et al., case number 2013-70769, in the 80th District Court of Harris County.