Satyam-Upaid: the disparagement suit twist

Apologies for drifting away from the main focus of this blog, but having tracked this story thus far, I thought it behoves me to at least give you an accurate explanation of latest developments: the Upaid motion that was reported on in the last post is in response to a business disparagement suit filed by Satyam in October 2008.

As a follow-up to the previous post, I thought readers would be interested to know how messy the Satyam-Upaid relationship has become, particularly since there are chances of misreporting on this issue in the days to come.

There are actually three cases being fought simultaneously between Upaid and Satyam.

Two of these are cases that have been filed by Upaid against Satyam – one in the Harrison County, Texas district court; and one in the State court in Texas. Both of these are near-identical suits, with the only difference being that there is no reference to the validity of patents in the suit filed in the State court (due to jurisdictional issues). The motion to compel the deposition of top Satyam officials, including Ramalinga Raju and Vadlamani, which was reported on this blog last month, was made in relation to this Federal court suit.

A third case, which is relevant to the story at hand, was filed by Satyam against Upaid in Collin County, Texas district court in October 2008. In this case, Satyam has alleged that Upaid has engaged in business disparagement against the Indian software company. (Note: is this a delaying tactic that Satyam has engaged in? Also, why was this news of this never made public by Satyam?) Upaid’s latest announcement of having filed a motion to compel the deposition of Satyam’s Chairman et al about the Maytas deal is in connection with this business disparagement case.

As a side note – a business disparagement case allows damages to recovered “when a disparaging comment is made about the products, services or character of a business, and the comment causes the business to suffer a financial loss.” According to this commentator, some courts have established the elements of a claim for business disparagement as (i) publication by the defendant of the disparaging words; (ii) falsity of the statement; (iii) malice; (iv) lack of privilege; and (v) special damages.

Murky waters lie beneath, and several coincidences emerge in this story – readers may be particularly interested to know that within hours of Satyam filing its the disparagement suit two months ago, news emerged that Satyam had been “banned from doing any off-shore work with the World Bank after the Bank’s forensic experts discovered that spy software was covertly installed on workstations inside the bank’s Washington headquarters, allegedly by one or more contractors from Satyam Computer Services.”

Note that I had not drawn any links between these two incidents earlier, but Upaid has alleged in its latest motion that this Maytas case negatively affects Satyam’s ethics and reputation, especially since it follows so close on the heels of the World Bank scandal which involved outsourcing work by Satyam. Upaid also draws attention to questions raised by investors earlier in transactions involving family members, particularly a 1999 sale of Satyam stock to a family member at a price significantly lower than market value.

Upaid also alleges in its motion that “In filing this suit for business disparagement, Satyam has put its reputation in the business community squarely at issue.” Through these various references, as far as I can tell, Upaid appears to allege that Satyam’s reputation was already questionable.

In its latest motion to compel testimony, which I have read, Upaid has established that it has filed this motion in this particular court after having served Requests for the Production of Documents related to the Maytas deal. It has also pointed out that Satyam has repeatedly refused to respond positively to Upaid’s earlier attempts to obtain the testimony of Ramalinga Raju and Srinivas Vadlamani in the patent-related case in the Eastern District of Texas.

Upaid further argues that “In light of Satyam’s professed desire to dispose of its cash reserves “in [a] few days,” Upaid cannot afford to engage in a letter writing campaign with Satyam’s counsel that will result in nothing but affording Satyam sufficient time to impermissibly deplete the assets that will be needed to satisfy a judgment in the cases brought by Upaid. Therefore, Upaid respectfully requests that this Court order Satyam to produce its officers for depositions.”

It reiterates that “the executives whose depositions are being requested … are in the best positions to know Satyam’s reputation in the business community and the events that have already permanently tainted that reputation. Satyam’s poor reputation in the marketplace is underscored by news accounts of Satyam’s recently abandoned transactions.”

While having unearthed all this, one question has been running in my head throughout, which I have already asked at the top of the post, but I reiterate – this disparagement case was filed in October. But why did Satyam choose to remain silent about this issue? Surely it would have been to Satyam’s advantage to advertise this suit. I can’t think of a rational explanation for Satyam’s voluntary silence. Answers are welcome.