The judge in LightSquared Inc.’s bankruptcy has been excluding some parties from closed-door conferences, possibly hindering a resolution of the case, two companies underwriting the wireless broadband provider’s reorganization said.
The lenders, Melody Business Finance LLC and Centaurus Capital LP, wrote a letter to U.S. Bankruptcy Judge Shelley Chapman in Manhattan today to address what they called their “exclusion” by the court from an off-the-record conference in her chambers yesterday.
Philip Falcone’s LightSquared is seeking approval of a bankruptcy exit plan that would put Dish Network Corp. (DISH) Chairman Charles Ergen at the back of the line to be repaid and close a two-year battle for control of the company’s airwaves. Hearings are under way to determine the status of Ergen’s $1 billion claim and get approval of the reorganization.
Melody and Centaurus are both underwriting part of a loan LightSquared plans to use to exit bankruptcy, and both said they already agreed to confidentiality provisions in the case. Their exclusion is “counterproductive to fostering the very consensus that the court is trying to achieve,” the lenders wrote in the letter obtained by Bloomberg News.
LightSquared’s plan would value the company at $7.7 billion, and parties including the lenders would supply $1.65 billion in debtor-in-possession financing plus $1 billion in exit financing.
“Different judges have different styles,” said Erik Gordon, a professor at the University of Michigan’s business and law schools. Gordon said that while there are some legitimate reasons to hold conferences that exclude some parties, such as for settlement talks, there are also risks, including creating gaps in a court record that can raise questions about a judge’s fairness on appeal.
Some of the trial has been closed so witnesses can be questioned on technical issues of LightSquared’s wireless assets, which are considered confidential for reasons of competitiveness. In four days of the hearing so far, the courtroom has been sealed at least three times.
There are risks to discussing a case with only some parties in closed chambers conferences, Gordon said. A party seeking to appeal the judge’s ruling would be lacking some information, and the system is meant to give both sides in a case a chance to hear arguments and rebut them, he said.
“If substantive discussions are being held in chambers and those discussions influence a ruling of the judge, and a party of interest was left out, that defeats the purpose of having a trial,” Gordon said.
Judges and their clerks don’t comment on such matters, a clerk for Chapman said.
LightSquared, based in Reston, Virginia, sought bankruptcy protection in 2012 after the Federal Communications Commission blocked its wireless service, saying it might interfere with civilian and military global-positioning-system navigation equipment. The company listed assets of $4.48 billion and debt of $2.29 billion.
The case is In re LightSquared Inc., 12-bk-12080, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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