When New York Knicks owner James Dolan settled claims last week that he failed to notify the government of additional shares he’d taken in the Madison Square Garden Company, the U.S. Justice Department and Federal Trade Commission announced in news releases that he agreed to pay a $609,810 fine.
Behind the scenes, Dolan, the executive chairman and CEO of the Madison Square Garden Company, had reached another deal: His law firm, Debevoise & Plimpton, was going to pay the penalty.
A spokeswoman for the Madison Square Garden Company placed the blame squarely on Debevoise & Plimpton in a statement that ran in news stories about the FTC enforcement action against Dolan. The statement said Debevoise was taking responsibility for a missed deadline.
“Debevoise & Plimpton is the law firm responsible for making timely [Hart-Scott-Rodino] filings relating to Jim Dolan’s MSG stock. Debevoise inadvertently missed a required HSR filing deadline, for a second time, which resulted in a fine by the FTC. Debevoise agreed to pay the fine as a result of their mistake,” the Madison Square Garden spokeswoman said.
The company, which also owns the New York Rangers of the National Hockey League, declined to comment further about Debevoise and the antitrust case. Debevoise declined to comment on what transpired. Jeffrey Cunard, managing partner of Debevoise’s Washington office, and Gary Kubek, a litigation partner in New York, represented Dolan in the settlement.
News that a law firm agreed to pay a client’s fine surprised several antitrust lawyers who spoke with The National Law Journal. It is more common, they said, to give a client credit for future work or cut a discount to make up for a mistake. The lawyers, who were not involved in the Dolan deal, said they were struck by the Madison Square Garden Company’s decision to publicly state that Debevoise was picking up the tab.
Less surprising, for antitrust lawyers, was the alleged violation itself.
Central to the Dolan case was the Hart-Scott-Rodino Act, a federal law that requires companies and individuals to notify the government of financial moves that raise the value of their voting shares in a business beyond a certain dollar threshold.
This year, the FTC has required notifications of transactions that result in holding stock or assets worth more than $84.4 million. But there are exceptions. “To say the least, it can be complicated in determining whether some transactions are notifiable,” one antitrust lawyer said.
For instance, stock purchases made “solely for the purpose of investment” are exempt from Hart-Scott-Rodino if the investor holds less than 10 percent of the company’s stock following the transaction. That exemption was not on the table for Dolan, who could not qualify as a so-called “passive” investor in the Madison Square Garden Company.
Antitrust lawyers said the FTC provides informal guidance on notification requirements and generally excuses first violations if they are found to have been inadvertent.
U.S. antitrust officials, for their part, said they cut Dolan a break.
“The United States adjusted the penalty downward from the maximum permitted under the HSR Act because the violation was inadvertent, the defendant promptly self-reported the violation after discovery, and the defendant is willing to resolve the matter by consent decree and avoid prolonged investigation and litigation,” Justice Department lawyers wrote in a court filing in Dolan’s case in Washington federal district court.
Dolan is only the latest executive to be hit with a Hart-Scott-Rodino penalty.
In 2011, Comcast CEO Brian Roberts paid $500,000 to resolve allegations that he failed to notify the government before acquiring additional stock that resulted in him holding more than $119.6 million in the company’s stock. Microsoft co-founder Bill Gates agreed to pay $800,000 in 2004 to settle similar allegations related to his investment in the pharmaceutical company ICOS. Gates did not qualify for the passive investor exemption because of his “longstanding membership on the board of directors of ICOS,” the Justice Department said at the time.
For Debevoise, the $609,810 fine amounts to a drop in the bucket. The Am Law 100 firm’s gross revenue clocked in at a record-high $822 million, up 11.8 percent over last year, according to sibling publication The American Lawyer.