Ogle v. Comcast Corp. (In re Hous. Reg'l Sports Network, L.P.)

547 B.R. 717

In re: Houston Regional Sports Network, L.P., Debtor.

Robert E. Ogle, Plaintiff

v.Comcast Corporation, Inc., et al, Defendants.

CASE NO: 13–35998

ADVERSARY NO. 15–03144

United States Bankruptcy Court, S.D. Texas, Houston Division.

Signed March 15, 2016

Entered March 16, 2016

Miriam Michelle Carreras, Eugene R. Egdorf, Lanier Law Firm PC, W. Mark Lanier, Attorney at Law, Houston, TX, for Plaintiff.

Vincent P. Slusher, Andrew B. Zollinger, DLA Piper LLP, Dallas, TX, for Defendants.

MEMORANDUM OPINION

Marvin Isgur, UNITED STATES BANKRUPTCY JUDGE

Comcast Corporation, Comcast Sports Management Services, LLC, Comcast Cable Communications, LLC, Houston SportsNet Finance, LLC, Houston SportsNet Holdings, LLC, National Digital Television Center, LLC, Comcast SportsNet California, LLC, NBCUniversal Media, LLC, Jon Litner, John Ruth, Robert Pick, and Madison Bond have filed a motion to dismiss Robert E. Ogle's complaint for failure to state a claim upon which relief may be granted. The motion is granted in part and denied in part. The following claims are dismissed:

• Count 2: Fraud by nondisclosure

• Count 3: Business disparagement

• Count 6: Breach of fiduciary duty

• Count 7: All breach of contract claims against NBCUniversal Media, LLC, and all claims pursuant to §§ 2.2(e) and 2.5 of the Comcast Services Agreement. The motion to dismiss is denied as to the claim against Comcast Sports Management Services, LLC, under § 2.4 of the Comcast Services Agreement.

• Count 10: Conspiracy

The motion to dismiss is denied with respect to all other claims.

Alleged Facts

In 2003, the Astros¹ and Rockets² formed Houston Regional Sports Network, L.P. ("the Debtor"), a Delaware limited partnership, in order to produce and distribute content relating to Houston's sports teams, including the Houston Astros, the Houston Rockets, and the Houston Dynamo, a Major League Soccer franchise. (ECF No. 1 at 11). The Debtor originally consisted of two limited partners, Rockets Partner, L.P. ("Rockets Partner") and Houston McLane Company, LLC ("Houston McLane"), representing the Astros. Id. The general partner was Houston Regional Sports Network, LLC, a Delaware limited liability company comprised of two members: JTA Sports, Inc. ("Rockets Member") and Houston McLane. (ECF No. 1 at 12). In 2010, Houston McLane transferred its limited partnership interest in the Debtor to McLane HRSN LP Holdings, LLC ("Astros Partner") and its membership interest in the general partner to McLane HRSN GP Holdings, LLC ("Astros Member"). Id.

Rockets Partner and Rockets Member are affiliates of Rocket Ball, Ltd. ("Rocket Ball"), the owner of the Houston Rockets. Rocket Ball owns the exclusive right to exhibit, exploit, and license the right to distribute programming related to the Houston Rockets. Id. Rocket Ball and Debtor were parties to a Media Rights License Agreement which granted the Debtor the exclusive right and license to produce and exhibit certain Houston Rockets content, including live television broadcasts of games. Id.

Prior to 2011, Astros Partner and Astros Member were affiliates of Houston McLane, the owner of the Houston Astros. Id. In 2011, Houston Baseball Partners LLC ("HBP") purchased the Houston Astros from Houston McLane. Astros Partner and Astros Member are affiliates of Houston Astros, LLC ("Astros LLC"), an HBP affiliate and current owner of the Houston Astros. Id. Just as with Rocket Ball, Astros LLC holds the exclusive right to license programming for the Houston Astros and has granted the Debtor broadcasting rights over Houston Astros games through a Media Rights Agreement. Id. at 11–12.

Comcast Bays a Stake in the Debtor

In 2010, Comcast Corporation, the leading cable provider in the Houston area as well as the owner of a chain of regional sports networks, expressed an interest in purchasing a stake in the Debtor. Id. at 12. On October 29, 2010, Houston SportsNet Holdings, LLC (the "Comcast Partner") was admitted as a limited partner in the Debtor and a member of the general partner. Comcast Partner owned a 22.443% stake in the Debtor, while Rockets Partner, Astros Partner, and the general partner held 30.923%, 46.384%, and 0.25% stakes, respectively. Id. Comcast Partner also held a 22.5% interest in the general partner, with 31% for Rockets Member and 46.5% for Astros Member. Id. The network was rebranded as Comcast SportsNet Houston ("CSN Houston").

The rights and responsibilities of the partners were governed by the Second Amended and Restated Agreement of Limited Partnership of Houston Regional Sports Network, L.P. (the "LP Agreement"). Pursuant to the LP Agreement, the Debtor was managed by the general partner, which was itself managed by a board of directors and governed by the Second Amended and Restated Limited Liability Company Agreement of the General Partner (the "LLC Agreement"). Id. at 13. The board consisted of one director appointed by Rockets Member, one by Astros Member, and two by Comcast Partner (Defendants Jon Litner and John Ruth). Id. Significantly, the LLC Agreement required unanimous consent of all directors for the Debtor to take certain actions. Id.

Simultaneous with Comcast's acquisition of a stake in the network, the Debtor entered into various agreements with certain Comcast affiliates, including the following:

• A credit agreement and security agreement with Houston SportsNet Finance, LLC ("Comcast Lender") by which Comcast Lender agreed to lend the Debtor $100 million over time. In return, the Debtor provided Comcast Lender security interests in certain assets.

• A Services Agreement with Comcast Sports Management Services, LLC ("Comcast Services") pursuant to which Comcast Services agreed to provide management oversight and certain enumerated operation services (including affiliate sales services, affiliate finance services, executive oversight services, operations and engineering, etc.), identification of prospective MVPDs,³ and negotiation with MVPDs interested in carrying CSN Houston.

• An affiliation agreement with Comcast Cable Communications, LLC ("Comcast Cable") under which Comcast Cable carried CSN Houston on its cable system in exchange for a monthly per- subscriber rate which varied based upon the territory of the subscriber.

Id. at 13–14.

The Debtor also executed an Amended and Restated Media Rights Agreement with Houston McLane on October 29, 2010, pursuant to which the Debtor's right to broadcast Houston Astros' games was extended through 2032. Id. at 14. In exchange, the Debtor agreed to make periodic payments totaling several hundred million dollars to Houston McLane. Similarly, the Debtor extended its broadcasting rights with Rocket Ball through 2032, also agreeing to make periodic payments totaling several hundred million dollars. Id. Under both agreements, if the Debtor failed to make a required media rights payment and failed to cure the default within sixty days, the Astros and Rockets would each be entitled to terminate their respective Media Rights Agreement. Id. at 15.

Ogle's Allegations that Comcast Began to Cripple the Debtor Financially

Ogle is the trustee of the HRSN Litigation Trust, a litigation trust created pursuant to the Debtor's Third Amended Chapter 11 Plan of Reorganization confirmed on October 30, 2014. (Case No. 13–35998; ECF No. 772). In that capacity, Ogle alleges that, starting at the latest in 2013, Comcast decided it would acquire the Debtor's most valuable assets, i.e. the right to broadcast Houston Astros and Houston Rockets programming for itself, rather than work with its partners to make the Debtor successful. Id. In February of 2012, Comcast Services and its affiliate NBCUniversal Media, LLC ("NBCU"), had begun to reach out to various MVPDs in anticipation of a planned October 2012 launch of CSN Houston. Id. On February 28, 2012, the board of directors approved the 2012 budget for the debtor based on a business plan prepared by Comcast Services. Id. However, by September of 2012 the Debtor had only exchanged proposals with certain MVPDs and had not signed any major affiliation agreements other than the preexisting deal with Comcast Cable. Id.

According to the complaint, employees of NBCU recommended in November of 2012 that the Debtor make a proposal to a major MVPD at rates significantly below those called for in the business plan. Id. at 16. Because these lower rates were unsustainable pursuant to the business model, the Astros requested that Comcast Services/NBCU formulate an alternate business plan to address the reality of reduced carriage. When no such business plan was forthcoming, the Astros opposed the NBCU proposal, reasoning that the Debtor should not enter into a major deal with an MVPD until a new business plan had been formulated. Id. The Astros made repeated requests to Comcast Services to formulate a new business plan, but these requests remained unaddressed. Ogle alleges that Comcast Services' decision to reject the Astros' request was not made in good faith and was in violation of the Services Agreement § 2.2(e). Id. at 17. By the spring of 2013, the Debtor had still not entered into any additional affiliation agreements and was experiencing large negative cash flows. Id.

Ogle alleges that the Debtor's failure to reach any new affiliation agreements was particularly noteworthy given that, in January of 2013, Comcast entered into a global deal with Suddenlink that incorporated every network in Comcast's portfolio except for CSN Houston. Id. at 18. The complaint alleges that Comcast never mentioned a potential Suddenlink deal to the board of directors and that the Debtor did not find out about the deal until after the fact. Id. According to the complaint, the reason Comcast failed to utilize its significant bargaining power in order to incorporate CSN Houston into the Suddenlink deal was because Comcast only owned a 22.5% stake in the Debtor. Id. at 19.

Failure to reach agreements with new MVPDs would allegedly benefit Comcast because the value of the...