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Voom Get Big Lift In Lawsuit Against Dish

1/31/2012 4:01 PM Eastern

A four-year-old, $2.5-billion lawsuit pitting former Cablevision Systems-owned satellite TV service Voom HD against No. 2 satellite television service provider Dish Network (nee EchoStar) appears to be moving closer to a trial, after an appeals judge affirmed that Dish destroyed evidence critical to the case.
A New York State Supreme Court Appellate Division judge has affirmed a lower-court decision that an adverse inference jury instruction is warranted in the case, potentially a severe blow to the plaintiffs.

Voom HD and Rainbow Media's Josh Sapan (left), Charles Dolan and Mickey Alpert show off the satellite-TV service at launch.In her ruling issued Jan. 31, Appellate Division Justice Sallie Manzanet-Daniels wrote, "Although Voom may have other evidence to point to, the missing evidence is from a crucial time period during which EchoStar appears to have been searching for a way out of its contract. EchoStar's internal communications undoubtedly concerned issues about what it understood the contract to mean, a contract that the motion court has now found to be ambiguous."

EchoStar in 2008 split up into Dish Network, the satellite-TV provider, and equipment supplier EchoStar Corp.

Cablevision shut down the Voom service in 2008 shortly after a carriage pact with EchoStar was terminated.

The channels were housed within Cablevision's former Rainbow Media Holdings programming unit, which was spun off as a separate public company last year as AMC Networks.

A trial was scheduled for last February, but was put on hold for the current appeal. No new court date has been yet been set.

"We are very pleased with today's ruling and look forward to putting the case to a jury," Cablevision said in a statement. Dish declined to comment.

Sanford Bernstein cable and satellite analyst Craig Moffett in a report called the ruling "a clear negative for Dish Network, and significantly strengthens the hands of AMC and Cablevision, either in court or in any potential settlement."

The case was originally filed in 2008 and stems from the Dish (then EchoStar Communications) decision to sever its contract with Voom HD, claiming that the fledgling HD content service breached its agreement.

As part of a $200-million purchase of Voom satellite assets in 2005, EchoStar agreed to carry Voom's 21 HD channels for 15 years.

The satellite giant had the right to terminate or alter the deal if Voom failed to spend $100 million on the service in any given calendar year.

When EchoStar terminated the contract in 2008, it said it did so because Voom breached the agreement.

Voom had denied that it failed to live up to the deal, and filed a suit later in 2008 claiming EchoStar had no right to terminate the agreement.

Voom is asking for about $2.5 billion in damages.

During the discovery portion of that case, Voom learned that EchoStar had deleted e-mail messages from employees that could be material to its case.

In November 2010, New York State Supreme Court Justice Richard Lowe chastised Dish for its conduct in the matter, granting Voom's motion to include an "adverse inference" instruction to the jury when the case goes to trial.

That instruction, according to several observers, is potentially devastating to Dish's case, because it instructs the jury that Dish had destroyed evidence that could be considered helpful to Cablevision.

According to the most recent ruling, a handful of those emails were recovered and proved to be highly relevant, including some from former EchoStar vice chairman Carl Vogel calling the Voom deal a "mistake" by previous management and pushing for executives to find a breach of the agreement to allow EchoStar out of the deal.

What EchoStar came up with -- that Voom had breached the deal by spending under $100 million on the service in 2006 -- was quickly refuted by Voom, which claimed its spent $102.9 million on the channels that year.

Later EchoStar's own auditor determined that Voom was correct. "...these guys are clean . . .very organized, forthcoming, and from an accounting perspective run a good shop," the auditor wrote to EchoStar in October 2007, according to the ruling on Monday.

Cablevision stock on Tuesday closed at $14.55, down 15 cents (1%), in NASDAQ trading. Dish closed at $27.92, down 49 cents (1.7%).

September