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Charter Settles $40 Million Fraud Claim

After months of what was at times rather nasty litigation, Charter Communications Inc. has agreed to settle its fraud suit against a Georgia contractor, agreeing to drop its $40 million suit and issue an apology.

Charter pulled out all the stops in its pursuit of Billy Ray Jones, the one-time owner of Crown Fiber Communications, a Georgia cable-construction firm, claiming that the company overcharged by $40 million, performed sub-par work and bribed former Charter executives with lavish gifts.

The St. Louis-based cable company’s allegations came as part of a counterclaim in response to Crown Fiber’s suit in state superior court in Gwinnett County, Ga., in November 2004 that Charter owed $1.5 million for the work performed. The operator countersued in December of that year, and succeeded in getting the case moved to U.S. District Court for the Northern District of Georgia, claiming Crown bilked it of $40 million.

As part of the settlement, Crown will drop its $1.5 million claim.

CARS AND TRIPS

Among the charges Charter made against Jones — who sold his company to Quanta Services, a Houston contractor, in 1999, but served as vice president for cable operations for a period after the sale — was that he bought cars and trips for three former Charter executives.

In return, Charter claimed, Crown Fiber was in line to be awarded an exclusive $200 million contract to upgrade Charter systems throughout the country, part of chairman Paul Allen’s $3.3 billion “Wired World” upgrade plan, according to court documents. Although Crown never got that two-year contract, it said it was not paid for work it did perform.

According to Charter’s counterclaim, Jones bribed former Charter Eastern Region senior vice president David McCall, former senior vice president of operations for the Gulf Coast region Ronald Johnson and former vice president of technology for Georgia Richard Ford. McCall, who pleaded guilty to one count of conspiracy to commit wire fraud in an unrelated case — a federal indictment involving accounting fraud and including three other former Charter senior executives — was sentenced to two years probation and a $200,000 fine in April 2005. Ford left Charter in 2003; Johnson departed in 2004.

According to the lawsuit, Johnson received cash and gifts including jewelry and trips to National Association for Stock Car Auto Racing events. (Jones’s son, Roy “Buckshot” Jones, is a former NASCAR driver.)

Ford, according to the suit, received cars and motorcycles, including a “Buckshot” Jones covered car trailer to transport his “legends” race car, which he also received from Billy Ray Jones.

Jones denied that the gifts were bribes. In order to prove they were, Charter had to show that they were damaged as a result of their executives receiving the gifts. Charter apparently was unable to unearth any evidence that they were in fact damaged, or that Jones or Crown Fiber defrauded the company.

According to their depositions filed with the court, three ex-Charter executives — former senior vice president of engineering John Pietri, former vice president of engineering Larry Schutz and former Eastern Division vice president of engineering Terry Cordova — found no evidence of fraud, overbilling or subpar work done by Crown.

In his deposition, Pietri, who is now retired, said that while he recommended that Charter not award the upgrade contract to Crown Fiber, that recommendation was based on the fear that it would alienate other contractors that Charter had been doing business with, and was not based on any impropriety or poor work done by Crown.

“My opposition to the proposal had nothing to do with (a) Crown Fiber’s pricing, which I thought was appropriate; (b) the quality of Crown Fiber’s work, which had always been satisfactory; (c) or any fear that Crown Fiber or its principals had exerted undue influence on or attempted to bribe Charter employees,” the deposition states.

Each of the depositions addressed the matter of Crown being more expensive than other contractors, but added that was because of market conditions — not because of any desire to defraud Charter. At the time, Comcast Corp., Cox Communications Inc. and Bell South Corp. all were doing major upgrades in the Southeast, Crown’s main operating area. Because of a labor shortage and to remain competitive with those three companies, Crown had to pay its employees salaries that were above those of contractors that operated in less-competitive areas.

Pietri also said in his deposition that it would have been impossible for Crown Fiber to overcharge Charter by $40 million because of the checks and balances inherent in the contract-approval process.

“Any fraud in connection with those projects, particularly fraud amounting to millions of dollars, would have been detected and would have been brought to my attention,” Pietri said in the deposition. “I make that assertion knowing that Charter could not have completed the [Wired World] Plan on time and under budget if Crown Fiber had committed such fraud. Furthermore, the projects Crown Fiber constructed simply would not have performed to Charter’s high standards if constructed by Crown Fiber in a substandard manner. To the best of my knowledge, all projects constructed by Crown Fiber, in fact, complied with Charter’s quality standards.”

JONES REP IS PLEASED

According to a person familiar with the settlement, Charter and Jones began negotiations in February. As part of the settlement, Charter also has left the door open to doing business with Quanta and Crown Fiber in the future.

“Certainly, we’re very pleased on behalf of Mr. Jones to have his interests vindicated,” Wilmer Parker, Jones’s attorney, said in an interview. “Charter’s willingness to concede that it has erred in its allegations of fraud is also very much appreciated.”

Gordon Ankney, a partner in the St. Louis law firm Thompson Coburn LLP, which represents Charter in the Crown litigation, confirmed that a settlement had been reached but said he was not at liberty to discuss the terms.