Charter Sues Law Firm in 2000 Deal

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Charter Communications is suing a Los Angeles-based law firm, claiming its malpractice cost the cable operator and its holding companies more than $150 million in a cable acquisition.

The suit, filed April 6 in U.S. District Court for the Central District of California in Santa Ana, claims St. Louis-based Charter's legal counsel in the deal — Irell & Manella LLP — erred in legal preparations for a transaction in which Charter holding companies acquired Bresnan Communications systems from the Bresnan family and investors that included AT&T.

Bresnan owners were to get units in a Charter holding company, which could later be converted to Charter Communications stock or cash.

But before the deal closed, AT&T realized the terms of the transaction would put the then-cable operator over a federal ownership cap that bars any provider from serving more than 30% of U.S. cable homes.

The law firm revised the deal, adding an amendment that would eliminate the regulatory glitch but have a Charter holding company getting 100% ownership of the former Bresnan systems, after the Bresnan owners exercised their options.

But before the deal closed on Feb. 14, 2000, the law firm further amended the transaction and an associate with Irell & Manella erroneously deleted the key amendment, according to the lawsuit.

As a result, the holding company up ended with only 70% ownership in the former Bresnan properties, and Charter chairman and principal shareholder Paul Allen had 30% direct ownership.

Charter acquired the 30% ownership from Allen in 2005.

The suit claims lawyers with Irell & Manella discovered the error in spring 2002 and didn't notify Charter until December. In the meantime, the firm worked to rectify the error while billing the cable operator for the hours, the suit charges.

Asked for comment on the suit, a spokesman issued a statement from Irell & Manella partner and general counsel David Gindler. It said the firm regrets Charter elected to sue rather than “insisting that Paul Allen honor the intent of the underlying deal as approved by Charter's board. If Charter suffered any loss at all, our firm was not the cause.”

Gindler said his firm is confident of prevailing once the whole story emerges in court.

Charter's claims include legal malpractice and fraudulent concealment. It wants $150 million in damages, plus costs.

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