Ergen Can’t Fully Dismiss LightSquared Control Case

Dish Network Corp. Chairman Charles Ergen can dismiss a lawsuit brought by Philip A. Falcone’s Harbinger Capital Partners LLC against him over how he bought debt in LightSquared Inc. and may face claims from the company itself, a judge said.

U.S. Bankruptcy Judge Shelley Chapman in Manhattan today dismissed allegations against some Ergen entities named in the lawsuit, and said that while Harbinger doesn’t have claims against Ergen, LightSquared can bring a complaint on similar grounds.

“To the extent that it has legs, I think it belongs to the debtor,” Chapman said. Ergen has said the suit is an attempt to derail his $2.22 billion cash offer to buy LightSquared, an owner of wireless spectrum, in bankruptcy. Chapman said the trading and bidding issues were like “apples and oranges” and wouldn’t affect each other.

Harbinger sued Ergen and Dish in August, claiming he’s fraudulently trying to take control of LightSquared, which provides broadband network services, by having an entity he controls, SP Special Opportunities LLC, buy large amounts of its debt. It wasn’t disclosed what entity was buying the debt and the trades took a long time to close, according to the complaint.

Ergen and SP said in a motion to dismiss the case that they made no “false representations” about the purchases, so there was no fraud.

EchoStar Named

Harbinger’s lawsuit also named EchoStar Corp. and L-Band Acquisition LLC, another Ergen entity, which made the offer to buy LightSquared’s assets. According to the motion to dismiss, Dish and EchoStar don’t have an ownership interest in SP.

Chapman dismissed Harbinger’s complaints against Dish, EchoStar and L-Band. She said LightSquared can re-plead the complaints against Ergen and SP.

James Dugan, a lawyer for Ergen, told Chapman today that the lawsuit called to mind a “Frankenstein monster” or “Alice in Wonderland.”

“What we see is an equity holder who stands to lose control of his company battling at any cost to retain control,” Dugan said, calling the lawsuit an attempt to disqualify Ergen’s bid. Harbinger is LightSquared’s largest equity owner.

Ergen’s Sound Point and its related SP Special Opportunities fund amassed $1 billion in LightSquared debt while rebuffing inquiries from Harbinger about who was behind the “corporate facade,” according to Falcone’s complaint.

26 Transactions

The debt was accumulated through 26 separate transactions during one year, and Ergen’s entity didn’t say it was buying because such an announcement might have caused the market to price the debt higher, Dugan told Chapman.

David Friedman, a lawyer for Harbinger, said the company didn’t know who was buying its debt despite rumors that it was Ergen.

Chapman said LightSquared should have come to her court earlier and expressed concern that a party was buying a blocking position in its debt,

“No one came in and said: ‘Our capital structure is being raided. People are buying our debt and no one is saying who it is.’ That never happened,” Chapman said.

LightSquared, based in Reston, Virginia, filed for bankruptcy in May 2012, listing assets of $4.48 billion and debt of $2.29 billion.

It petitioned for bankruptcy protection to reorganize while seeking U.S. approval to use its wireless spectrum. Regulators blocked the service in 2012 after GPS-device makers and users, including the U.S. military and commercial airlines, said LightSquared’s signals would confound navigation gear.

The case is In re LightSquared Inc., 12-bk-12080, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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