Comcast Corp. v. Hous. Baseball Partners LLC

• Decision Date: 17 June 2021
• Docket Number: NO. 14-20-00043-CV,14-20-00043-CV
• Citation: 627 S.W.3d 398
• Court: Texas Court of Appeals
• Parties: COMCAST CORPORATION, NBCUniversal Media, LLC, McLane Champions, LLC, and R. Drayton McLane, Jr., Appellants v. HOUSTON BASEBALL PARTNERS LLC, Appellee

627 S.W.3d 398

COMCAST CORPORATION, NBCUniversal Media, LLC, McLane Champions, LLC, and R. Drayton McLane, Jr., Appellants

v.HOUSTON BASEBALL PARTNERS LLC, Appellee

NO. 14-20-00043-CV

Court of Appeals of Texas, Houston (14th Dist.).

Opinion filed June 17, 2021

Wayne Fisher, Bernard Grover Johnson III, Geoffrey Alan Berg, Charles L. Babcock, Matthew Cavenaugh, Harris Huguenard, David J. Beck, Nancy Wells Hamilton, Andrew Kasner, Thomas Francis Hetherington, Houston, for Appellants.

Ronald G. Franklin, Charles Hampton, Thomas M. Farrell, Houston, for Appellee.

Panel consists of Chief Justice Christopher and Justices Jewell and Poissant.

Kevin Jewell, Justice

The parties to this interlocutory appeal under the Texas Citizens Participation Act ("TCPA") had an interest in the 2011 sale of the Houston Astros Major League Baseball Club and its share of a regional sports television network. Two years after the sale closed, appellee Houston Baseball Partners LLC ("HBP") sued McLane Champions, LLC, R. Drayton McLane, Jr., Comcast Corporation, and NBCUniversal Media, LLC. HBP alleged claims for fraud, fraudulent inducement, fraud by nondisclosure, negligent misrepresentation, and breach of contract. HBP also sought declaratory relief and alleged that the defendants engaged in a civil conspiracy to defraud. The defendants removed the case to federal court, where it remained for five years in connection with the sports network's bankruptcy. After remand to state court, the defendants/appellants filed a TCPA motion to dismiss, which the trial court denied.

Appellants contend the TCPA mandates dismissal because HBP lacks standing and otherwise failed to present prima facie evidence in support of its claims. In response, HBP says appellants filed their TCPA motion to dismiss untimely, the act does not apply, and, if it applies, the present claims fall within the act's commercial-speech exemption. In any event, HBP continues, prima facie evidence exists to support each claim.

We presume without deciding that the TCPA applies and was timely invoked. After careful review of the voluminous record before us, we conclude that HBP has standing, and that it produced clear and specific evidence for each essential element of its claims. Because HBP met its prima facie burden under the TCPA, we need not address the claimed exemption's applicability, and the trial court did not err in denying appellants’ motion to dismiss. We affirm the court's order.

Background

A. The 2011 Sale of the Astros and its Interest in the Network

Before 2011, McLane Champions, LLC ("Champions"), an entity controlled by R. Drayton McLane, indirectly owned the Houston Astros.¹ The Astros and the Houston Rockets of the National Basketball Association formed the Houston Regional Sports Network, L.P. (the "Network") in 2003 to broadcast their games to viewers in Houston and surrounding areas. The Network's owners initially sublicensed the Astros’ media rights to a third-party broadcaster.

In October 2010, an affiliate of Comcast Corporation purchased a 22.5% equity interest in the Network, leaving the Astros with a 46.5% interest and Houston Rockets affiliates with a 31% interest. Following this restructuring, according to HBP, the Network would move "in-house" all the functions previously performed by the third-party broadcaster. Comcast agreed to distribute the Network's programming to Comcast subscribers and to market and sell the Network to other carriers.

In 2011, Jim Crane formed HBP with the intent to use that entity as a vehicle through which he and other investors would acquire the Astros and the Astros’ interest in the Network. On May 16, 2011, HBP executed a Purchase and Sale Agreement ("PSA") with Champions, outlining the terms of the proposed transaction. The PSA set a purchase price of $615 million, subject to various adjustments. Over half of that amount was to be funded from equity investors. The transaction closed on November 22, 2011.

In the months before closing, Margaret Barradas, George Postolos, and Mike Slaughter conducted business due diligence on the purchaser's behalf. During the initial due-diligence phase, they learned that the Astros club had been losing money for years and was substantially in debt. Given that reality, the value of the Network became the critical factor driving how much the purchaser was willing to pay for the Astros and its interest in the Network. On this point, the due-diligence team allegedly was told by Champions’ representative, Allen & Company,² that the business plan underlying the October 2010 restructuring of the Network supported a $714 million valuation for the Network as a whole, which equated to a value of $332 million for the Astros’ 46.5% interest. Allen & Company also allegedly represented that the economic projections and assumptions in the business plan created for the Network in October 2010 remained valid in 2011.

The due-diligence team focused efforts on evaluating and validating Allen & Company's Network valuation, which included assessing whether the assumptions imbedded in the Network's business plan were, as the due-diligence team put it, "reasonable and achievable." During the due-diligence period, it is alleged that several misrepresentations were made to the due-diligence team that were material to an assessment of the Network's value and hence to the purchaser's formulation of the price it was willing to pay. These alleged misrepresentations and omissions form the core of HBP's claims, and we discuss them in detail below. In short, HBP alleges it was led to believe that certain assumptions underlying the Network's business plan were reasonable and achievable, when in fact they were not and the seller and Comcast knew they were not.

One key assumption underlying Champions’ valuation of the Network concerned the rates at which distribution partners, such as cable and satellite companies, would pay for the right to distribute the Network's programming to their subscribers. Understanding how the Network generated revenue is important to this aspect of the dispute. According to HBP, the due-diligence team was told that regional sports networks have two primary sources of revenue: (a) "affiliate fees" paid by "distribution partners" (cable, telco, and satellite companies) for the right to distribute the network's programming to their subscribers; and (b) advertising fees. Affiliate fees, which represent a greater share of revenue than advertising fees, are usually based on a monthly rate per subscriber that varies depending on the subscriber's proximity to the network's home city, with subscribers being grouped for this purpose into geographic zones. Under the plan, the zone in closest proximity to the Network's home city was known as "Zone 1" and commanded the highest subscriber rates. Comcast had agreed in October 2010 to pay certain rates applicable to four geographic zones, and the premise behind the Network's plan was that other distributors would agree to pay the same rates. The parties place the greatest emphasis on the rate assigned to Zone 1, which was the highest rate.³ Although Comcast agreed to pay the Zone 1 rate specified in its affiliation agreement, the agreement contained a so-called "Most Favored Nations" clause, which provided that if the Network signed affiliation agreements with other distributors at lower base rates, then Comcast would be entitled to reduce its base rates to equal those lower rates. If, however, the rates contained in the 2010 Comcast affiliation agreement could in fact be achieved for both Comcast and non-Comcast subscribers at the market penetration levels provided by Allen & Company, the due-diligence team believed that those rates supported the Network valuation proposed by Allen & Company and Champions.

The Network, however, did not develop as desired. When the Network launched in 2012, it had signed no affiliate agreements other than Comcast's. According to Crane, after the November 2011 closing, Comcast was unable to deliver affiliation agreements with any distribution partners at rates "anywhere close to those set forth in the business plan," and "every potential agreement that Comcast proposed for our consideration guaranteed that the Network would lose money and that the Astros’ equity in the Network would be wiped out." Because the Network was unable to secure affiliate agreements on terms consistent with the business plan assumptions underlying the Network's valuation and at rates comparable to those in Comcast's affiliation agreement, HBP contended the Network suffered financial distress and was unable to pay media rights fees to the Astros. HBP contends that appellants knew all along that the rates underlying the Network's 2010 plan, particularly the Zone 1 rate, were not realistically achievable.

B. HBP Sues the Seller and Others

HBP sued McLane, Champions, Comcast, and a Comcast subsidiary (NBCUniversal Media, LLC or "NBCUniversal"), asserting claims for fraud, fraudulent inducement, fraud by nondisclosure, and negligent misrepresentation against all defendants. HBP alleged that all defendants engaged in a civil conspiracy. HBP also asserted a claim for breach of contract against Champions and sought a declaratory judgment regarding Champions’ indemnification obligations under the PSA. As a result of the defendants’ alleged wrongful conduct, HBP claimed to have paid much more for the acquisition than it would have offered if it possessed accurate information and that it lost its equity interest in the Network, among incurring other damages.

Comcast immediately removed the case to federal court, where it had previously initiated an involuntary bankruptcy proceeding against the Network. There, the dispute remained for five years until the bankruptcy court exercised its discretion to abstain from hearing the matter. The case was remanded to state court.

C. The Defendants Seek Dismissal under the TCPA

Upon remand, McLane and Champions filed a TCPA motion to...