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Judge Orders SBC to Submit to Arbitration

From Bloomberg News

SBC Communications Inc. must let an arbitrator decide if one of its units wrongfully withdrew from a partnership providing cable TV services over phone lines and should pay $100 million, a judge ruled Tuesday.

SBC, the parent of Pacific Bell and Southwestern Bell, asked a Delaware judge in November to let its SBC Interactive Inc. unit out of the Americast partnership without having arbitrators review the withdrawal. Others partners include Ameritech Corp., BellSouth Corp., GTE Corp. and Walt Disney Co.

After it withdrew from the Americast partnership in July, the remaining partners demanded that SBC let an arbitrator decide whether it could withdraw and avoid paying the $100 million it agreed to contribute to the partnership’s cable TV unit. SBC argued it hadn’t violated the agreement and arbitration wasn’t warranted.

Delaware Chancery Court Judge Jack Jacobs found that the partnership agreement clearly requires SBC to submit the dispute over its withdrawal to arbitration.

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A review of the law and the agreement “lead swiftly and inexorably to the conclusion that the arbitration provision of the partnership agreement covers the underlying dispute that divides the parties,” Jacobs wrote.

When the companies formed the partnership in 1995, they agreed to contribute $100 million each to set up a system to offer cable TV over fiber-optic and wireless networks and design an interactive TV-program guide.

Before 2000, a partner could withdraw with the consent of the others, on its own if it paid the full $100 million or without paying if it showed its strategic direction had changed under the agreement, Jacobs said. It also required all disputes be arbitrated.

SBC said the other partners waited too long to challenge its withdrawal and waived their rights to arbitration. Jacobs dismissed that claim, though, saying those were the kinds of issues the agreement envisioned being decided through arbitration.

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Lawyers for SBC declined comment on Jacobs’ decision Tuesday while attorneys for other Americast partners weren’t immediately available for comment.

Shares of San Antonio-based SBC rose 56 cents to $74 on the New York Stock Exchange.


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