UPDATE 2-Dodgers' judge sees "bare-knuckled" fight looming

Wed Jul 20, 2011 9:16pm EDT

* Judge says will try to rule Thursday on loan

* Judge says will not let loan dictate terms

* Hearing reveals battles to come over law, TV rights (Recasts throughout that judge says case will get tougher, adds details on key issues in case)

By Tom Hals

WILMINGTON, Del., July 20 (Reuters) - The judge overseeing the Los Angeles Dodgers bankruptcy case said he would try to decide by the end of Thursday the contentious question of which loan the team should take to stay afloat -- but said he expected even rougher battles ahead.

Judge Kevin Gross declined to rule late on Wednesday on whether the Dodgers could borrow $150 million from a hedge fund, as they prefer, or should take a cheaper loan from Major League Baseball that the team has called a "deal with the devil."

The judge said he would try to rule on the loan question by the end of business on Thursday, but said this was not the key issue in the case.

"To me this is about dollars and cents," said Gross. "This is not the control issue the parties think that it is because MLB, if it gets the (loan), isn't going to dictate the terms."

Amid a slump in attendance this year, the Dodgers need the money to keep the team operating during its bankruptcy until it can sell its cable TV rights and stabilize its finances.

At the end of a particularly contentious nine-hour hearing on Wednesday, Gross said he expected the going to get tougher when he addresses the issue of whether to apply the rules of MLB or bankruptcy.

The hearings will become "a little more of a bare-knuckled process than it is right now," he said.

Bankruptcy loans are often a means of exerting control over companies in Chapter 11 and the team's proposal to borrow the money from the Highbridge Capital unit of JPMorgan Chase & Co (JPM.N) became a major battle.

MLB offered a competing deal that it said could save the Dodgers $14 million.

Baseball Commissioner Bud Selig rejected a proposed $3 billion TV deal the team reached with Fox Sports last month, and days later owner Frank McCourt put the Dodgers in bankruptcy in a dramatic bid to prevent seizure by the league.

JOINED AT THE HIP

The team argued that the Highbridge loan should be approved because under the deference that courts show to companies -- the business judgment rule -- the team should not be forced to borrow from an adversary.

"Is it unreasonable to say you don't want to do business with a lender who is fundamentally opposed to your business plan?" asked team attorney Bruce Bennett. "They want a forced sale (of the team) where they can decide who can bid. That's not the kind of reorganization we want."

MLB's attorney reminded the judge that the team's value depends on its membership in baseball.

"They have already done the deal with the devil. It's inescapable. We are linked at the hip. Our success is tied to their success and vice versa," said Tom Lauria.

MLB would not retreat from one central point -- that the team must abide by all league rules that McCourt agreed to when he bought the team in 2004.

"The Dodgers don't get four strikes where opponents get three," said the MLB lawyer, Lauria.

MLB said its disagreements were directed not at the Dodgers but at McCourt, who they said used the bankruptcy loan as a way to benefit his own finances.

"He can't support his lifestyle," said Lauria, who said the financing was used as a way to free up cash for McCourt's divorce.

McCourt is waging a simultaneous divorce-court fight with ex-wife Jamie McCourt, who also claims ownership of the team.

The team will soon present its plans to auction its cable TV rights, a move likely to bring Fox Sports into the case as another adversary.

An attorney for the broadcaster said it feared the Dodgers would reject its current cable TV rights deal in order to conduct the auction of future rights.

In addition, the team appeared to lose goodwill with the U.S. Trustee, a Department of Justice official who oversees bankruptcy cases, over accusations the team did not fully disclose fees in its Highbridge loan proposal.

"I feel lied to," said an attorney from the Trustee's office. "For a case to start that way. We have to question if the entire case is going to be tainted."

The bankruptcy case is In re: Los Angeles Dodgers LLC, U.S. Bankruptcy Court, District of Delaware, No. 11-12010. (Reporting by Tom Hals; Editing by Gary Hill)

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