3:48pm PT by Eriq Gardner
Al Jazeera Responds to Al Gore's Lawsuit
In the Delaware Court of Chancery, Al Jazeera has responded in force to Al Gore's bombshell lawsuit claiming the Qatari-backed network is withholding money from its $500 million acquisition of Current TV to "buy favor with its distributors."
The two Al's — Al Jazeera and Al Gore — agree on one thing: When Current TV was purchased in January 2013, Al Jazeera America was most interested in acquiring favorable distribution rights.
But that's pretty much the only thing that the two sides see eye-to-eye on these days. According to Gore and his partner, Joel Hyatt, Al Jazeera squandered those favorable distribution rights by making an "ill-advised, one-sided" agreement with Time Warner Cable, which set off "most favored nation" obligations to other distributors. According to Al Jazeera, it's Gore and Hyatt who shoulder the blame — and responsibility — for what later happened by failing to get TWC on board in the first place.
In new counterclaims, Al Jazeera presents details about what happened in the run-up to the Current TV purchase.
Negotiations began in October 2012, says the defendant, and contrary to what Al Gore asserted, there was never any expressed "reservations" about the sale. Hyatt is said to have personally visited Doha, Qatar, to meet with the director general at Al Jazeera's parent company and following his visit, showered his new acquaintance with compliments.
After negotiations, the two sides came to a merger agreement that December, but according to the counterclaims, Gore and Hyatt "suddenly proposed that AJMN make a separate side deal with them personally" whereby they would enter into a "service agreement" and serve on an advisory board. The alleged proposal had Gore and Hyatt potentially earning millions of dollars if Al Jazeera increased its subscribers after the closing or renewed its contracts with distributors. Al Jazeera supposedly pushed back on this proposal because other Current shareholders wouldn't get any benefit and because "it smacked of self-dealing."
Back to the news network's distribution deals, which are really the key to the complicated dispute…
Although Current TV was getting good money from distributors on a per-subscriber basis, some of the distributors had clauses in the contract that permitted termination upon change of the news network's control. According to Al Jazeera, that meant that to clear the $500 million deal, Gore and Hyatt needed to get distributor's consent.
"This process proved very difficult for Hyatt, as distributors had developed a dislike for Hyatt as a result of his mismanagement of Current," states Al Jazeera's court papers. "By late December 2012, Hyatt still had not been able to secure the consents of DirecTV or TWC."
The defendant then quotes a private email from Hyatt to Gore on December 29, just a few days before the transaction closed. Hyatt allegedly expressed frustration about the situation, stating, "You and I had an expectation that AJ would pay a windfall."
According to Al Jazeera, the situation became resolved — at least short-term — when the parties negotiated a reduction in the purchase price and other modifications to the merger agreement. That caused the acquisition to go forward despite TWC not being immediately on board. Al Jazeera says it insisted upon other protections, representations and warranties, and ultimately, indemnification.
Gore's lawsuit asserts that Al Jazeera is misusing $65 million held in escrow after the $500 million deal. The plaintiffs accuse Al Jazeera of encouraging distributors to file baseless claims whereby Al Jazeera is then "able to make payments to its distributors [from the escrowed money] to keep them happy without spending a dime of its own money."
In response, Al Jazeera says there is nothing unusual about setting aside a portion of the purchase price in escrow to protect against liability related to the inaccuracies of the seller's representations and warranties. Given the tenuous relationship with distributors at the time of the Current sale, Al Jazeera believes that having such an arrangement was certainly appropriate in this circumstance. And Al Jazeera believes it did nothing wrong thereafter. Al Jazeera describes how distributors, such as AT&T and DirecTV, later demanded MFN audits (probably resulting from the TWC deal) and filed claims for damages.
Gore's lawsuit argued that Al Jazeera had an obligation to provide notice of such distributor claims and allow them to handle the defense, leading Al Jazeera to retort, "Notice to Hyatt prior to the date of delivery of the Claim Certificates would not have altered the proper defense of those claims or the outcome of any of Al Jazeera's disputes. In fact, Hyatt's poor relationship with the distributors would have made it much more difficult to resolve those claims if he controlled the defense of those claims."
Al Jazeera, through attorneys at DLA Piper, is seeking a declaration of its rights to the indemnification money plus compensatory damages.