As NewsBusters previously reported back in September, Judge William Scott Henry ordered CNN to comply with financial discovery in the $1 billion defamation suit against them and turn over documents related to net worth and cash flow, among others. The order was further supported in October when he cleared the way for CNN’s parent company, Warner Bros. Discovery (WBD) to be subpoenaed for corroborating documents.
But despite CNN’s promises to the court that those documents would be turned over, nothing of the sort has been provided; with CNN and WBD saying they don’t exist. In a Friday filings exclusively obtained by NewsBusters, U.S. Navy veteran and Plaintiff Zachary Young is now accused CNN of knowingly misleading the court on the existence of the documents and the ability to comply.
And what he’s now asking for could take a chunk out of Warner Bros. Discovery.
In a hearing in September, Judge Henry seemed under the impression that WBD would have access to a detailed breakdown of CNN’s finances. “So, I mean, if CNN did internal modeling or predictions and set that within the umbrella for Warner Brothers and Warner Brothers happens to have a copy of it. I think Warner Brothers can produce it,” he said.
In the October hearing, Judge Henry told CNN what their corporate representatives should be prepared to hand over and talk about in deposition:
The Corporative Representative shall be prepared to answer questions relating to CNN, Inc.’s relationship to any parent or subsidiary company and how those relationships impact the financial resources of CNN, Inc. and CNN Worldwide. But, the Corporate Representative is not otherwise required to answer questions relating to the financial resources of any parent or subsidiary of CNN, Inc. to the extent it does not concern monetary streams into or out of CNN, Inc. or CNN Worldwide within the corporate structure.
And yet, according to the filing exclusively obtained by NewsBusters, the documents one would expect to contain CNN’s own financial information don’t exist.
As explained by Young’s lead counsel Vel Freedman (Freedman Normand Friedland LLP) in the filing, CNN “did not have cash flow statements or balance sheets” because WBD “is a conglomerate that operates CNN and its other business segments like some kind of subsidiary slush fund, thus ensuring that CNN has virtually no control over or visibility in the cash generated by its business.”
“WBD apparently manages all aspects of CNN’s cash flows,” Freedman adds. Perhaps shockingly, “It collects virtually all of CNN’s cash directly and immediately commingles it with cash generated by WBD’s other subsidiary business segments.”
But according to WBD’s answers to the subpoena: “WBD does not maintain cash flow statements reflecting CNN, INC. or CNN Worldwide’s cash flows…nor does WBD have the ability to run a report of obtain complete and accurate information or data in order to create such a cash flows.” WBD provided a similar answer to a request for balance sheets.
Video from September 5 hearing.
The filing further notes that in the deposition, “Plaintiffs learned that CNN never intended to produce documents showing assets and liabilities (because they don’t exist)” as the way WBD conducts business. That’s despite CNN’s lawyers promising “at least 10 times” in the September hearing “that documents sufficient to show assets and liabilities were being provided” for the deposition.
“Not only did CNN and WBD fail to provide any of this promised documents identifying assets and liabilities, but CNN’s representative also failed to supply an information about the net worth number CNN provided (but disclaimed) in its interrogatory response,” Freedman added.
Because of this, Young and his team were accusing CNN of misleading the court and wanted action taken against taken against them for the “discovery abuses.”
First, Young was requesting that in substitution of CNN’s own finances, “The Court should enter an order requiring WBD’s financial statements be used to determine CNN’s ability to pay, or, at a minimum, giving the jury the option to rely on them.”
This comes into play heavily with the punitive damages Judge Henry had already approved of as an option if a jury found CNN liable.
In the September hearing, Judge Henry explained why a jury would need to know financial network and financial resources of a defendant when issuing determinations for punitive damages, which are meant to deter future allegedly defamatory behavior:
All right. So, with those guiding principles, nowhere in here does it say ‘the defendant’s net worth.’ The only thing that financial talks about are: motivation by unreasonable financial gain and the financial resources of the defendant. Resources, not financial net worth of the defendant. The financial resources of the defendant. And then, as I indicated, the note referenced two cases the deal with punitive damages being awarded in other cases. So, that is what the jury is instructed on to make a determination as to the proper amount of punitive damages.
With WBD’s finances being used as the metric to determine a punitive damages figure, it could far exceed previous estimates.
Young also wanted the court to “bar CNN from putting forward any evidence or argument about its net worth, either as a consequence of its own testimony or alternatively as a sanction,” and or “enter an adverse inference sanction against CNN.”
With the start of the trial less than a month away, this latest development in the case could cost CNN and WBD big time.
