Cable Pioneer Wins Reversal of $24 Million Verdict


On August 30, the Illinois Appellate Court reversed and vacated the trial court's breach of fiduciary duty judgment against Charles F. Dolan, founder of the Cablevision group of companies and a pioneer in the cable television industry. Mr. Dolan was sued by a group of limited partner investors for allegedly charging excessive rates of interest on a series of loans Mr. Dolan made to the Cablevision of Chicago partnership in the early 1980's when that cable television venture was threatened with financial failure. Following a two-week jury trial and verdict for plaintiffs, the trial court entered judgment against Mr. Dolan and his affiliate company, Cablevision Systems Services Corporation ("CSSC") for $24,866,789.

The appellate court overturned the verdict holding that the trial court committed error in allowing plaintiffs to present improper evidence that Mr. Dolan breached his fiduciary duty to the partnership. At trial, plaintiffs presented testimony of two "experts" in the area of real estate limited partnerships, who told that jury that Mr. Dolan breached his fiduciary duty by charging the partnership a higher rate of interest than he could have obtained for himself or his affiliate companies. Plaintiffs further argued to the jury that Mr. Dolan was obligated to "pass through" to the partnership the more favorable interest rates he could have obtained. The appellate court ruled this testimony should have been excluded because it amounted to expert testimony on Mr. Dolan's legal duties, which is improper. Plaintiffs' theory of fiduciary liability was also found improper because it disregarded the relevant partnership agreement, which gave Mr. Dolan the right to make loans to the partnership as long as he did not charge the partnership more than it would have been charged for a third-party loan. Accordingly, the judgment was vacated and the case remanded for retrial without the improper evidence.

Mr. Dolan, the Chairman of Cablevision Systems Corporation and the principle owner of the New York Knicks and New York Rangers was the founder of Home Box Office in the early days of cable television. After selling his HBO interest to Time Warner, Dolan developed the successful Cablevision system in Long Island, New York and, ultimately, throughout the East Coast. In 1981, he founded Cablevision of Chicago, which struggled financially for years due to increased competition, higher franchising costs, and slow consumer acceptance in the Chicago area. As a result of these factors, Cablevision of Chicago exhausted its available bank financing and required an infusion of funds from Mr. Dolan and his affiliates. At trial, plaintiffs' primary evidence that the loans were unfair was the testimony of retained experts.

"This decision imposes long needed limits on expert testimony in fiduciary duty cases." said William J. Ryan, who tried the case along with others, and lead the appellate court challenge. "The trial was very frustrating at times because the court allowed so-called 'experts' to tell the jury the plaintiffs own self-serving interpretation of the law of fiduciary duty." Mr. Ryan, who left Jenner & Block to found Scandaglia & Ryan, added "Now the case will be decided on the basis of law and the partnership agreement, not the opinions of paid experts usurping the judge's role to instruct the jury."

The appellate court also reversed the trial court's rulings limiting the defendants' statute of limitations defense. Specifically, the court granted judgment in defendants favor on one loan and ordered the trial court to instruct the jury on the statute of limitations defense with respect to the other two transactions on retrial. "The evidence at trial showed that Mr. Dolan disclosed the salient facts concerning each of the challenged transactions to the limited partners as early as 1985." said Alan W. Nicgorski, who worked with and Mr. Ryan at trial and on appeal. "Rather than objecting to the

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