Mel Simon’s 2009 Pacers deal is wreaking legal havoc

Herb Simon

Mel Simon

When Mel and Herb Simon restructured ownership of the Indiana Pacers in February 2009, they said nothing publicly. It might have gone entirely unnoticed had the team’s media guide for the following season not described Herb as the team’s sole owner. The brothers each had owned 50 percent of the franchise since buying it in 1983.

Six years later, the deal—worked out just seven months before Simon Property Group Inc. co-founder Mel Simon died at age 82—has triggered multiple legal headaches for the Simon family. In Colorado, Melvin’s widow, Bren, is suing the federal government in an effort to overturn an IRS determination that the terms were so tilted in Herb’s favor that Mel essentially gave him an $83 million gift. Bren, who has a home in a resort area west of Denver, is seeking to recoup $21 million in gift taxes the agency ordered her to pay following an audit.

The litigation playing out here is even more intriguing. In September, Herb Simon filed a highly redacted lawsuit in Hamilton County seeking a declaration that the team is his alone. The maneuver was aimed at Bren, 72, who court records show is contending that an unspecified “interest” in the franchise passed to her.

Having Bren in the Pacers’ picture could be problematic for Herb, 81. She’s had strained relations with many Simon family members, and has been known to make derogatory remarks about the team.

Melvin and Bren, his second wife, married in 1972. Changes Melvin made to his estate plan the winter before his death that strongly favored Bren touched off a massive estate fight with children from his first marriage—Simon Property Group CEO David Simon, Deborah Simon and Cindy Simon Skjodt. Bren and the children finally reached a settlement in 2012, though they continue to haggle.

David Herzog, an attorney for Herb Simon who leads business litigation at Faegre Baker Daniels, declined to comment. Alan Brown, an attorney for Bren who leads the business litigation at Frost Brown Todd, couldn’t be reached.

Court records that would otherwise spell out the terms of the brothers’ 2009 Pacers deal—which converted ownership of the team from Pacers Basketball Corp. to Pacers Basketball LLC—are redacted.

Bren’s Colorado lawsuit calls what transpired a “reorganization.”

“Mel received substantial consideration under the reorganization, including, without limitation, the termination of continuing obligations to fund losses and answer mandatory capital calls, a release from personal guarantees and a preference for proceeds upon any sale of the Pacers.”

The suit pointedly asserts that “the Pacers became a civic and family embarrassment and lost significant fan support” after the infamous November 2004 brawl in Auburn Hills, Michigan. Finances turned so bleak that Mel and Herb had to pump tens of millions of dollars into the franchise annually in the form of capital contributions and loans to keep it afloat, the suit alleges.

Fed up, Mel in 2007 approached Herb about selling the team. But Herb wasn’t interested, the suit says, and their partnership agreement stipulated that Herb had to consent to ownership transfers to anyone other than David Simon.

In 2008, the brothers began working with advisers at Katz Sapper & Miller to fashion “an equitable agreement whereby Mel would be relieved of the burden of funding ongoing losses while permitting Herb to continue to operate the Pacers.”

They struck a deal in June 2008. But before it took effect, the global financial crisis hit, “which had a dramatic negative impact on the Pacers,” according to the suit. As a result, Herb said he was unwilling to close the original deal, and the parties launched a fresh round of negotiations that culminated in the February 2009 transaction.

Mel’s children and Bren agreed as recently as a July 2014 court filing that any interest Mel’s estate still had in the team had a fair market value of $0.

A few months later, the trustee for Mel’s estate, former Indiana Supreme Court Justice Ted Boehm, transferred that ostensibly worthless interest to Bren, following the terms of the estate settlement.

Herb’s attorneys contend Boehm’s transfer to Bren was invalid, but the rationale for their legal position was redacted.

They sound exasperated that, after Boehm transferred the interest, Bren flip-flopped. “Directly contradicting her prior representation to the probate court, Bren now claims that the same interest” has real value, a Herb Simon filing says.

While redactions make the legal arguments difficult to follow, Bren’s position appears to be premised on the fact that, while Herb acquired Melvin’s 50 percent stake, he remained a member of the LLC, which carries with it certain legal rights.

It will be up to a judge to determine whether Bren is now the valid holder of that membership, and if so, what—if any—benefits that affords her.•