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 U.S. Bankruptcy Judge Shelley Chapman was hearing closing arguments
in a trial over whether Ergen concealed his identity to acquire his
controlling stake of LightSquared's debt. The outcome of the trial
is likely to determine the fate of LightSquared's wireless rights
after it emerges from Chapter 11.
"There's no question that Ergen was a competitor" of LightSquared,
and should not have been able to buy its debt, a lawyer for
LightSquared, Andrew LeBlanc, told Chapman.
LightSquared filed for bankruptcy in 2012 after the Federal
Communications Commission revoked its license to build a planned
wireless network on concerns it could interfere with GPS systems.
Ergen bought up about $1 billion worth of LightSquared's debt,
despite an agreement between LightSquared and its lenders that
barred competitors from acquiring the company's debt. Ergen later
said he bought the debt in his personal capacity, not on behalf of
Dish.
LightSquared and its main shareholder, Phil Falcone's Harbinger
Capital Partners, sued Dish and Ergen, saying Ergen had bought the
debt on Dish's behalf and to circumvent the credit agreement and
stack the deck for a Dish takeover.
A Dish unit last year bid $2.2 billion for LightSquared, but dropped
the offer in January.
LightSquared has proposed to exit bankruptcy under a plan that would
subordinate Ergen's claims while paying other secured creditors in
full and allow Harbinger to retain an ownership stake. A bankruptcy
confirmation hearing is to start on Wednesday.
But LightSquared built the plan on the idea that Ergen acquired his
debt illegally, meaning Chapman likely cannot approve the plan
unless she first sides with LightSquared in its lawsuit against
Ergen.
The hearing to confirm the plan is likely to run through next week.
Chapman may not rule in the trial until after the confirmation
hearings are over.
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Delivering closing arguments for Ergen on Monday, lawyer Rachel
Strickland said LightSquared's problems — namely its lack of FCC
approval and inability to raise capital — were not caused by Ergen.
In fact, Strickland said, "Phil Falcone welcomed bankruptcy."
"He saw it as a way to delay, to bog things down and buy time
because he was waiting for an FCC resolution that would allow him to
retain his equity," Strickland said.
A lawyer for Harbinger said Ergen had a long-term interest in
acquiring LightSquared and was thinking of Dish when he made his
purchases. Ergen even concealed them from his wife, a Dish board
member, the lawyer, David Friedman, said.
Friedman urged common sense, saying Ergen should have known any ban
on debt ownership by Dish would extend to Ergen. To assume
otherwise, he said, would be "insane" and would "defy commercial
sense."
Chapman was skeptical, asking whether Harbinger may have initially
welcomed Ergen's play in hopes it would attract other strategic
buyers. She asked why LightSquared and Harbinger did not raise
concerns about Dish earlier in the case.
"No one called 911," she said. "No one said, ‘Help, there's a
competitor in my capital structure.'"
The case is In Re LightSquared Inc, U.S. Bankruptcy Court, Southern
District of New York, No. 12-12080.
(Reporting by Nick Brown; editing by Leslie Adler)
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