EchoStar's `Egregious' Acts in Destroying E-Mail Threaten Court Defense

A court-imposed sanction against EchoStar Satellite LLC, for “egregious” conduct in destroying e-mail evidence, may jeopardize the company’s defense of a $2.5 billion Cablevision Systems Corp. contract suit.

The decision, which was made public Nov. 9, also highlights EchoStar’s history of punishments for breaking the rules in other court cases.

“EchoStar has systematically destroyed evidence in direct violation of the law and in the face of a ruling by a federal court that criticized EchoStar for the same bad-faith conduct,” New York state judge Richard Lowe wrote in an opinion in the case, filed in 2008 by Voom HD Holdings LLC, a Cablevision unit.

Lowe said that EchoStar erased e-mails Voom could have used to help prove its claims. As punishment, Lowe said he will tell jurors that EchoStar destroyed evidence and that the jury may assume the evidence would have been helpful to Voom’s case.

EchoStar climbed 9 cents to $20.76 at 1:36 p.m. New York time in Nasdaq Stock Market trading. EchoStar spokeswoman Kathy Miller and Cablevision spokeswoman Kim Kerns declined to comment.

The ruling comes in a suit by Voom that seeks $2.5 billion in damages from EchoStar’s alleged breach of a 15-year distribution agreement. The 2005 contract called for Voom to provide 21 high-definition television channels to EchoStar, which at the time operated the Dish Network, the second-biggest provider of satellite television in the U.S. after DirecTV.

Dish Network

EchoStar and Dish became separate companies in 2008 when EchoStar Communications Corp. changed its name to Dish Network Corp., focusing on satellite television, and spun off EchoStar Corp. EchoStar provides Dish with the technology it uses to provide satellite television to its customers, Dish said on its website. Both companies are based in Englewood, Colorado. Charles Ergen, the president, chairman and chief executive officer of Dish, also serves as EchoStar’s chairman.

Two years into the contract, EchoStar found itself paying too much to Voom and on Jan. 20, 2008, began trying to manufacture an excuse to terminate the agreement, Voom claims in its suit. EchoStar claimed Voom wasn’t investing $100 million a year in the high-definition service, as defined in the contract, and said it was permitted to end the agreement. Voom, which no longer provides high-definition programming in the U.S., sued. A trial date hasn’t been set.

Requests Denied

Lowe, who is presiding over the case in state court in Manhattan, this month denied requests by both sides to rule in their favor before trial. He did grant a request by Voom to sanction EchoStar, finding that the company failed to block the automatic deletion of e-mails after seven days at a time the company should have known it would be involved in litigation over the Voom deal.

EchoStar had been sanctioned in an earlier sexual- harassment case, filed by former employee Dino Broccoli. In that case, a federal judge in Maryland criticized EchoStar’s “extraordinary” policy of permanently deleting e-mails after 21 days.

“It appears that, since the Broccoli decision, EchoStar reduced its automatic delete function, deleting e-mails after only seven days instead of after 21 days,” Lowe wrote. “EchoStar failed to preserve documents not only prior to Voom HD commencing litigation, but also for four months after this litigation was commenced, making it even more egregious than Broccoli.”

‘Grossly Negligent’

Lowe said EchoStar acted in bad faith and that its failure to preserve evidence that should have been turned over to Voom was at least “grossly negligent.”

Lowe also barred EchoStar from calling its expert witness on damages at the trial, blaming “EchoStar’s last-minute finagling with expert reports, believing that it can play fast and loose with the rules of procedure in order to enhance its litigation posture.”

In addition to the Broccoli case, Voom argued in court papers that EchoStar had been sanctioned or criticized at least seven other times in recent years for misconduct in litigation.

“It’s highly unusual for a company to have such a high frequency of discovery abuse allegations and sanctions against it,” said Robert Scott, a Dallas-area lawyer who is an expert on media and technology law.

Negative Instruction

Scott said EchoStar, by alienating the judge and prompting the negative instruction to any jury that hears the case, may lose at trial.

“That’s not the kind of instruction you want the judge to give,” Scott said. “It almost comes across as an instruction to rule in favor” of the complaining party, he said.

The most serious case currently involving Dish and EchoStar, according to Craig Moffett, an analyst at Sanford C. Bernstein in New York, is a patent dispute with TiVo Inc. over digital video recording. A federal appeals court in Washington upheld a verdict that EchoStar was infringing a TiVo patent for “time warp” technology that lets users record a program and play parts of it back at the same time.

EchoStar and Dish, which had been ordered to disable their DVR service, continued providing it to customers, claiming the new system was different from the one that was found to be infringing. A judge in the case hit EchoStar with a $90 million fine for contempt of court, which was upheld by a three-judge appeals panel. On Nov. 9, the full appeals court heard arguments in the case.

Voom argued that the TiVo case shows EchoStar’s “general disregard for the judicial process.”

The case is Voom HD Holdings LLC v. Echostar Satellite LLC, No. 600292/08, New York State Supreme Court (Manhattan).

To contact the reporter on this story: Bob Van Voris in federal court in Manhattan at rvanvoris@bloomberg.net.

To contact the editor responsible for this story: David Rovella at drovella@bloomberg.net.

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