Case

HK – Negligence Suit

In HK on December 27, 2008 at 9:47 pm
Negligence Suit
TV station buyers say Holland & Knight botched deal

November 05, 2008 By: Billy Shields

Frances Gail Faigenblat

 
 

he owners of Spanish-language GenTV are suing four Holland & Knight partners, alleging the $48 million purchase price of a Key West television station was millions of dollars too high because of botched legal work.

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Lawsuit

The station buyers allege Holland partners Enrique Gomez-Pinzon and Charles Naftalin in Washington, Eric Fishman in New York and Frances Gail Faigenblat in Miami failed to determine whether WGEN-TV, known as GenTV, had valid must-carry rights when New York-based Wepahe Entertainment bought a 75 percent stake and Caracol Television bought a 25 percent stake in the station in 2005. The buyers say the station’s must-carry rights had been voided years before.

A station with must-carry rights must be part of a cable provider’s offerings in the local station’s market.

“Stations that have must-carry rights always have a minimum right to be carried in the marketplace, which impacts the value of the TV station,” said James Whisenand, a name partner with Whisenand & Turner in Miami, who represents the owners suing in Miami-Dade Circuit Court. “Without must-carry rights [GenTV] is worth substantially less.”

Whisenand would not give an estimate for the difference in value between a must-carry station and one without those rights and declined further comment on the lawsuit.

Caracol, which wanted to bolster the market for its Spanish-language offerings in South Florida, is a 54-year-old Colombian TV network known for its telenovelas, reality shows and news magazines. It relaunched GenTV as a Spanish-language station in September 2006.

“Until at least Aug. 17, 2007, defendants repeatedly advised plaintiffs that the station had legally recognized must-carry rights without adverse claims,” the lawsuit said. Caracol said it invested an additional $25 million in the station after the purchase in the mistaken belief it had must-carry rights.

The station owners allege the Holland & Knight lawyers attempted to cover up their gaffe and tried to get Caracol executives “to provide a general release of defendants in exchange for discounted legal fees and continued legal representation.”

The owners are suing for professional negligence, breach of contract and breach of fiduciary duty. They are seeking the return of about $2 million in legal fees plus other damages.

Holland & Knight plans to vigorously defend this action and are confident that we will prevail,” firm spokeswoman Karen McBride said by e-mail. She did not address the details of the dispute.

GenTV is carried throughout South Florida by Comcast, Advanced Cable, Telemedia and satellite providers without the station paying for carriage, Whisenand said. But without established must-carry rights, it could watch its reach evaporate from the airwaves when its cable and satellite carriage agreements expire.

This is another chapter in a half-century fight that intensified after Congress passed the Cable Television Consumer Protection and Competition Act of 1992, which firmly established must-carry rights.

“It really wasn’t a big deal until Ted Turner and the explosion of the cable channels,” said David Ostroff, chair of the telecommunications department at the University of Florida’s college of journalism.

Turner sued the Federal Communications Commission shortly after passage of the law on the grounds that regulating his cable offerings violated his First Amendment rights. In a 1997 opinion, the U.S. Supreme Court affirmed a trial court ruling against Turner and found must-carry rights were constitutional.

Cable networks are obligated by the FCC to carry local TV stations with a few exceptions: a station may choose to waive its must-carry rights in favor of negotiating a carrying price from the cable provider or a station may lose must-carry status if its signal isn’t powerful enough in a particular market or if a cable provider petitions the FCC for a market modification order that would void must-carry rights, Ostroff said.

The plaintiffs allege the FCC approved market modification orders deleting WGEN’s must-carry rights sometime between 1996 and 2001.

Exhibits attached to the lawsuit include copies of e-mails among the attorneys. In one message, Naftalin wrote Faigenblat to say, “It is my opinion that we (H&K) reasonably should have discovered the FCC market modification orders but did not. … We need to discuss how to communicate our findings.”

A May 23 letter from Gomez-Pinzon to Diego Cordoba Mallarino, president of Caracol parent Valorem, followed a meeting in Bogota, Colombia. Gomez-Pinzon’s letter suggested Caracol should sue former station owner William de la Pena, a Los Angeles ophthalmologist, but warned Cordoba that the network should probably retain other counsel.

Caracol retained Holland & Knight in September 2005, with Gomez-Pinzon as the engagement partner at an hourly rate of $390. Fishman worked on tax regulation matters at a rate of $415 an hour, according to documents filed with the lawsuit. The other partners were brought in later.

The lawsuit filed Oct. 17 has been assigned to Circuit Judge Gill Freeman in the court’s complex business division. The Holland & Knight attorneys have not filed an answer yet.

Billy Shields can be reached at (305) 347-6649.

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Posted via email from Case Investigation

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