SkyBOX: Tough Cookies

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From : 5/15/2006

[FONT=verdana, arial, helvetica]by Evie Haskell[/FONT]

"Our legal department is a profit center."

The line was frequently delivered with a smile. But no one, ever, considered it a joke. Back in the good ol' days (when EchoStar honcho Charles W. Ergen still spoke up close and in person to the masses) folks close to the industry knew very well what he meant by "profit center." Indeed Ergen, along with lawyer-in-chief David Moskowitz, prided themselves on their reputation as legal pit bulls. Those who dealt with the company said contract negotiations tended to be startlingly one-sided. And those who disagreed with them frequently landed in court where Moskowitz and crew aimed to wring every concession, and sometimes every dime, from their pockets.

This, of course, has not changed. EchoStar's tough cookie approach to dissenters ... from retailers to programmers to insurance companies to patent holders ... remains on display, on a nearly daily basis, in courts around the country. Now, to be fair, EchoStar is a big company, and big companies nearly always draw big numbers of lawsuits. But we're not talking about volume here. The issue is more in that "profit center" approach.

Undeniably, the attitude has proved enormously useful to the company. And useful business tactics are ... well ... useful. But recently the courts have begun to take note of the tactics. And a rather sour note it is.

"Flagrant misconduct," "acts of bad faith" and "misrepresentations and voilations of court orders" .... according to a recent article in EchoStar's home-town newspaper, The Denver Post, that's what former Colorado supreme court justice Howard Kirshbaum had to say about the company's conduct in an ongoing dispute with DISH Network retailers. Acting as a court-appointed special master in the case, Kirshbaum reportedly complained that EchoStar destroyed e-mails pertinent to the case, misled him during his inquiry and undermined the retailers' efforts at fact finding.

EchoStar, of course, disagreed with this assessment, noting that it "produced or made available for inspection well over 500,000 pages of documents in discovery."

But this is hardly the only example of judicial tongue lashings directed at the company over recent years. For example, according to the Post, EchoStar or its attorneys have been sanctioned three separate times by federal judges since 2004. The charges include "conscious wrongdoing" in a wrangle over satellite insurance; destruction of evidence in a fight with a retailer; and "unreasonable and vexatious" behavior in a contract dispute with a programmer.

In reviewing the cases for the Post, University of Denver College of Law assistant dean Daniel Vigil said, "Lawyers usually know where the line is and they often walk right up to it. But sometimes judges confirm that they crossed the line. It looks like that has happened a few times with EchoStar."

Again EchoStar demurred with Moskowitz issuing a statement noting that, "We are confident our actions are ethical and in the best interests of our customers and our shareholders."

So what are we to make of all this? As noted earlier, if you've been watching the industry for a while, the fact that Messieurs Ergen and Moskowitz play hard ball should come as no surprise. But that fact that the hardball has reached the consumer press ... and may, in a case or two, be bouncing back ... now that could be well worth watching even more closely than usual.

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