Supreme Court: No Liability for Charter Communications Suppliers

High Court Upholds Dismissal by Lower Court of Suit vs. Cable Operator, Motorola, Scientific Atlanta

By Jon Hemingway -- Broadcasting & Cable, 1/15/2008 11:55:00 AM

In a ruling on the case between StoneRidge Investment Partners and Charter Communications, the U.S. Supreme Court ruled that investors cannot sue third parties in cases of securities fraud.

StoneRidge’s lawsuit alleged that Charter suppliers Motorola and Scientific Atlanta conspired to inflate the cable operator’s revenues and cash flow in 2000 by agreeing to hike rates for set-top boxes charged to Charter and in turn using the funds to buy unsold advertising from the cable company.

In a 5-3 vote Tuesday, the Supreme Court upheld a lower-court dismissal of the lawsuit. In the written opinion of the majority, delivered by Justice Anthony Kennedy, the court concluded that the “implied right of action does not reach the customer/supplier companies because the investors did not rely upon their statements or representations.”

The court stated that “reliance by the plaintiff upon the defendant’s deceptive acts is an essential element” of the suit and that for liability to arise, there need be a direct connection between the misrepresentations of the defendants and injury to the plaintiff.

However, the court found that because the suppliers had no duty to disclose their acts and the investing public had no knowledge of them, the plaintiffs cannot show reliance on them.