When E-mails Contradict Deposition Testimony

Resource: Daily Business Review

Dates: 



When Qantum Communications cut a preliminary deal to buy two radio stations from businessman Ronald Hale, the private investment firm thought it had a lock on the properties because Hale said he wouldn't entertain any other suitors. But in April, Hale sold one of the stations to rival Cumulus Media Inc., prompting Qantum to cry foul. In an effort to stop the sale in Miami federal court, Qantum lawyers sought to prove that Hale had violated a so-called "no shop" clause in the sales contract. During the course of discovery, the lawyers say, they found the evidence they needed: a series of e-mails that show Hale had been discussing a sale to Cumulus as early as 2004, well within the period of their client's "no shop" clause. After the e-mails surfaced, U.S. District Judge Jose Martinez granted Qantum's request for a temporary injunction on Aug. 9, and prevented the sale of the station to any party other than Qantum. As electronic discovery becomes more commonly used, e-mails are proving to be a gold mine of information in corporate legal disputes. "E-mail discovery is probably the richest source of evidence," said David Milian, a partner at Kozyak Tropin & Throckmorton in Coral Gables, Fla., who is not involved in the case. "Some of the best admissions come through e-mail. I think it's because the authors are writing them in a sort of informal style which they otherwise would not do if they were putting out a formal letter or memo." John O'Sullivan, a partner at Akerman Senterfitt, who along with associate Jason Kellogg represented Qantum, called the e-mails' impact "huge." "This is a fairly complicated corporate contract dispute," O'Sullivan said. "It might be difficult for a court to follow. And whenever you're asking the court to get into an ongoing commercial transaction, there's a lot of reluctance for a judge to dive in and tell the parties what to do in the business world. But the false statements and the proof of the false statements clarified the whole situation."

In depositions, Hale had denied speaking to other potential buyers before the "no shop" provision expired. The dispute over the stations' sale dates back to 2003, when Qantum Communications entered an agreement to purchase the stations from Hale, a Fort Walton Beach businessman. From the beginning, the relationship between the two parties was contentious. In court papers, Qantum alleges that Hale and Star Broadcasting, his corporation that owns WTKE, violated the no shop provision of the contract, which forbids any negotiations with other potential buyers until March 5, 2005, giving Qantum an 18-month window after the original agreement. Qantum had entered into two agreements to acquire WMMK and WTKE from Hale on Sept. 5, 2003. The separate agreements were necessary since the two North Florida stations were owned by different companies. However, both stations were controlled by Hale. Qantum agreed to pay $3 million for WTKE and began the process of obtaining approvals from the Federal Communications Commission for the acquisition.

Trouble arose in the WMMK deal, when Qantum learned that the station had a number of liens, judgments and debts against it. Qantum attempted to close on the deal in March 2004, but no one from the station appeared for the closing. After Qantum filed a breach of contract suit in Okaloosa County, Fla., the deal finally closed. But more legal trouble was around the corner. In May 2004, Gulf Breeze Media, Inc., the Hale-controlled corporation that owned WMMK, filed for Chapter 11 bankruptcy protection in the Northern District of Florida. Qantum alleges in Miami federal court that the bankruptcy filing was a ruse to undo the deal, then to shop WMMK to the highest bidder to cover the station's debt. Through the bankruptcy proceeding, Qantum ultimately purchased WMMK for the originally agreed upon price of $2.5 million, but the transaction was far from smooth, with the parties returning to court to hammer out the purchase. After acquiring WMMK, Qantum set its sights on WTKE, but again the deal was thwarted by disputes and legal claims, including a fight over the use of an antenna. Qantum also accused Hale of failing to provide it with proper financial data. The battle took another turn and hit a new low on May 5, when Qantum investor Michael Mangan read in a trade publication that WTKE had been sold to Cumulus - a Qantum competitor that holds about 70 percent of the Fort Walton radio market. Qantum alleges the deal was worth as much as $6.25 million. Qantum learned that Hale had entered an agreement with Cumulus on April 18 to sell WTKE. Qantum argued its agreement prohibited Hale from negotiating with any other buyer until after March 5, and that the whole deal couldn't have possibly gone down between March 5 and April 18. But there was no smoking gun.

On July 1, Qantum filed for an injunction in U.S. District Court in Miami, a venue allowed by a provision in the contract. Hale was deposed and testified that, as far as he could recall, he began negotiations with Cumulus on March 7. Hale also provided e-mails from a Hotmail account between himself and Cumulus executives, which did not show any talk of a deal before March 7. However, Cumulus also produced documents for Qantum, including e-mails that showed Hale offering WTKE to Cumulus in October 2004, and discussing financial terms. E-mails in December between Hale and Cumulus expressed concerns about the Qantum contract. Before Judge Martinez, Qantum argued that Hale had breached their contract and that his termination of it was invalid. Ronald Ravikoff, managing partner at Zuckerman Spaeder in Miami, contested Qantum's claim, arguing that Qantum took an 18-month option to buy the station and attempted to turn it into a permanent right to own it. He has asked Judge Martinez to deny the forced sale of WTKE to Qantum. The request is pending. At an Aug. 3 hearing, Ravikoff told Judge Martinez that the case was "a classic business squeeze where you have a large company imposing its power and demanding requirements that weren't in the contract."

Ravikoff argued that in the context of the sour business relationship between Hale and Qantum, it would have been impossible to close the deal in the 18-month window. "We're now at the point where you know the contract is going to end. The deal is not going to happen," Ravikoff told Martinez. "The no shop provision does not serve any purpose, because we are talking about the no shopping provision violated at the end of the deal when they knew it wasn't going to happen." Ravikoff, however, conceded that Hale had breached the no shop provision.

In an interview, Ravikoff said that his client's memory and e-mail were at odds. "E-mail tends not to be treated with the same sanctity that other correspondence is," he said. "They're a lot more casual, and people tend to forget that this stuff stays around forever." Judge Martinez, a former prosecutor, did not buy that the dates of the negotiations slipped Hale's memory. At the Aug. 3 hearing, he likened it to his days as a prosecutor, when he asked a witness if he was on an airplane that crashed in the Colombian jungle with 4,000 pounds of narcotics on it, and the witness said he could not remember. "That's like telling me you're asked have any of your children ever died a violent death, and you say, 'I don't really remember,' " Martinez said from the bench. Days later, Martinez granted the preliminary injunction for Qantum. Ravikoff said he felt the e-mail was a significant factor for the judge. O'Sullivan agreed that the e-mail was a major factor in this case and said that the importance of electronic communications is a growing trend. "I've seen a number of cases where you're going along in discovery and you get hard drives from computers or e-mail, and you get dynamite," O'Sullivan said. "I think it's going to become increasingly more common in these cases, since e-mail is so heavily relied upon. And it lasts forever."

Milian said people in general - even those in the corporate world - have a different mentality when it comes to e-mailing than they would in other forms of written communication. "I think the reason it becomes such an issue, is that they are sent in such an informal style," Milian said. "And, incorrectly, people think, 'I send this and there's no paper trail.' I think that's why you get more smoking gun e-mails now." Qantum is moving forward with the second part of its case, asking the court to force the sale of the station to Qantum. O'Sullivan also did not dismiss the possibility of filing for sanctions against Hale. He declined to elaborate. "We're certainly going to pursue any remedies available to us in connection with the testimony and the documents," he said.