City Partnership Co. v. Ir-Tci Partners V.Lp.
| Decision Date | 31 January 2003 |
| Docket Number | No. CIV.A. 99-RB-2122 (CBS).,CIV.A. 99-RB-2122 (CBS). |
| Citation | 252 F.Supp.2d 1114 |
| Parties | CITY PARTNERSHIP CO., on behalf of itself and all others similarly situated and derivatively on behalf of American Cable TV Investors V, Ltd, a Colorado limited partnership, Plaintiff, v. IR-TCI PARTNERS V, L.P., TCI Ventures V, Inc., Tele-Communications, Inc., and Lehman Brothers, Inc., Defendants and American Cable TV Investors V, Ltd, a Colorado limited partnership, Nominal Defendant. |
| Court | U.S. District Court — District of Colorado |
THIS MATTER comes before the court on Plaintiff City Partnership Co.'s ("City Partnership") Motion to Bar Advances of Litigation Expenses to Defendant Lehman Brothers, Inc. from Assets held by the Act5 Partnership During the Pendency of this Action (accepted for filing October 2, 2002). City Partnership seeks an Order suspending all future reimbursement payments to Lehman Brothers, Inc. ("Lehman Brothers") pending resolution of the underlying action, and barring Defendants or AT & T Broadband, Defendant Tele-Communications, Inc.'s ("TCI") successor in interest, from reimbursing themselves from American Cable TV Investors V, Ltd's ("ACT5") assets for any litigation expenses they may have already advanced to Lehman Brothers, Inc. Lehman Brothers filed its Response on October 1, 2002.1
Pursuant to the General Order of Reference dated November 5, 1999, this motion was referred to the Magistrate Judge. The court heard oral argument from all interested parties on January 24, 2003. The court has considered the arguments raised in the parties' papers and during the January 24, 2003 hearing, as well as the entire case file and the applicable law. For the following reasons, City Partnership's motion is denied.
City Partnership's claims are summarized in an Amended Scheduling Order filed on June 18, 2001. City Partnership has asserted class action claims on behalf of a class of limited partners of ACT5, and derivative claims on behalf of the same partnership. City Partnership alleges violations of sections 14(a) and 20(a) of the Securities Exchange Act of 1934, as well as common law claims for breach, or aiding and abetting a breach, of fiduciary duty. City Partnership contends that IR-TCI Partners V, L.P., as Managing General Partner of ACT5, sold a cable system serving communities in and around Riverside, California, to Century Communications Corporation at a sales price "dramatically lower" than its actual value. City Partnership alleges that this sale was affected through the use of proxy statements containing materially false and misleading information. City Partnership also contends that all Defendants either breached or aided and abetted a breach of the fiduciary duties of candor, loyalty, due care and diligence. The claims against Lehman Brothers arise from a Fairness Opinion that Lehman Brothers issued regarding the Riverside sale on August 31, 1998. In its Fairness Opinion, Lehman Brothers concluded that as of the date of its Opinion, from a financial point of view, the consideration to be received by ACT5 on the proposed sale of the Riverside system was fair to ACT5.
City Partnership filed a motion for class certification on February 27, 2002. Defendants, including Lehman Brothers, filed oppositions to class certification on May 1, 2002, arguing that City Partnership failed to comply with the requirements imposed by the Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u, and that City Partnership is an improper class representative because it faces a conflict of interest as a simultaneous class and derivative representative. Lehman Brothers also moved for summary judgment on October 7, 2002.
For purposes of the pending motion, no further discussion of the underlying claims and defenses is necessary. It is useful, however, to reference relevant portions of the Engagement Letter executed by Lehman Brothers and ACT5. In pertinent part, the Engagement Letter states that ACT5 shall
(a) indemnify Lehman Brothers and hold it harmless against any and all losses, claims, damages or liabilities to which Lehman Brothers may become subject arising in any manner out of or in connection with the rendering of services by Lehman Brothers hereunder or the rendering of additional services by Lehman Brothers as requested by the Partnership that are related to the services rendered hereunder, unless it is finally judicially determined that such losses, claims, damages or liabilities resulted directly from the gross negligence, bad faith or willful misconduct of Lehman Brothers; and
(b) reimburse Lehman Brothers promptly for any legal or other expenses reasonably incurred by it in connection with investigating, preparing to defend or defending, ... any lawsuits, investigations, claims or other proceedings arising in any manner out of or in connection with the rendering of services by Lehman Brothers hereunder or the rendering of additional services by Lehman Brothers as requested by the Partnership that are related to the services rendered hereunder ...; provided, however, that in the event a final judicial determination is made to the effect specified in subparagraph 7(a) above, Lehman Brothers will remit to the Partnership any amounts reimbursed under this subparagraph 7(b).
The Partnership agrees that the indemnification and reimbursement commitments set forth in this paragraph 7 shall apply if either the Partnership or Lehman Brothers is a formal party to any such lawsuits, claims or other proceedings ....
See Exhibit A H 7, attached to City Partnership's Motion.
City Partnership claims that it received a copy of the Engagement Letter through initial disclosures in late 2001 Defendants insist that the Engagement Letter was disclosed in February 2000. City Partnership contends that it only learned in early-2002 that Defendants were interpreting the Engagement Letter to provide on-going reimbursement payments, and learned for the first time in August 2002 that AT & T Broadband had been making advance reimbursements on behalf of ACT5.
It is undisputed that since the inception of this action, AT & T Broadband has paid more than $350,000 in reimbursements to Lehman Brothers, with the expectation that ACT5 will repay those amounts through an inter-company transfer. Lehman Brothers has submitted additional invoices for more than $163,000 in legal fees and expenses that AT & T Broadband has declined to pay pending a decision on this motion. During the January 24, 2003 hearing, counsel for Lehman Brothers indicated that his law firm's billing statements are routinely subjected to the billing judgment of AT & T Broadband and Lehman Brothers. AT & T Broadband has declined to pay some fees and expenses listed on billing statements, while Lehman Brothers has directed counsel to attend some depositions by telephone. In those instances where AT & T Broadband has declined to pay specific invoice items, counsel then looks to Lehman Brothers for payment of those particular amounts.
City Partnership's motion asks the court to "maintain the status quo" by barring any payment or reimbursement of Lehman's litigation expenses. (Motion p. 1). City Partnership argues that the court has the inherent authority to manage class and derivative actions to protect the interests of the putative class and the limited partners of ACT5. City Partnership further contends that the Engagement Letter is ambiguous and should not be interpreted or applied in such a manner as to lead to an absurd result.
[1-4] As a preliminary matter, the court is struck by City Partnership's stated desire to "maintain the status quo." While City Partnership admittedly seeks an equitable remedy, during the January 24, 2003 hearing, City Partnership's counsel disclaimed any desire to obtain preliminary injunctive relief.2 City Partnership's position is understandable. See Big 0 Tires, Inc. v. Bigfoot 4X4, Inc., 167 F.Supp.2d 1216, 1221 (D.Colo.2001) (). See also Schultz v. 400 Cooperative Corp., 292 A.D.2d 16, 736 N.Y.S.2d 9, 12 (N.Y.App.Div.2002) (). The purpose of a preliminary injunction is to preserve the status quo between the parties pending a final determination on the merits. Resolution Trust Corp. v. Cruce, 972 F.2d 1195, 1198 (10th Cir.1992). Because a preliminary injunction is an extraordinary remedy, the plaintiffs right to relief must be clear and unequivocal. SCFC ILC, Inc. v. Visa USA Inc., 936 F.2d 1096, 1098 (10th Cir. 1991). Whether an injunction should issue is a matter committed to the sound discretion of the trial court. Prows v. Federal Bureau of Prisons, 981 F.2d 466, 468 (10th Cir.1992) (...
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