May 21, 2014 / 2:36 PM / 3 years ago

LightSquared win for Dish's Ergen may hurt him in investor lawsuit

(Reuters) - Dish Network (DISH.O) Chairman Charles Ergen scored a big win this month in the bankruptcy of wireless venture LightSquared. But the judge who delivered the ruling also had some harsh words for Ergen, and they could come back to haunt the chairman in a separate lawsuit in Nevada.

New York Bankruptcy Judge Shelley Chapman nixed LightSquared’s proposed Chapter 11 exit plan, which would have pushed Ergen behind other creditors.

LightSquared had sued Ergen, accusing him of scheming to improperly take control of LightSquared by secretly acquiring its loans. Chapman ruled only a piece of Ergen’s debt deserved to be altered, so the restructuring plan was unfair.

That should give Ergen leverage as sides negotiate a new deal to restructure LightSquared, which is majority owned by Phil Falcone’s Harbinger Capital Partners.

But Ergen may have a harder time in a Nevada lawsuit, where shareholders claim he breached his fiduciary duty by amassing LightSquared debt on his own behalf, rather than letting Dish make a play for the company. The shareholders are seeking damages from Ergen and other Dish directors, saying the chairman’s actions ultimately cost Dish a deal.

Chapman’s ruling described Ergen’s “stunning lack of candor with the Dish board” about his LightSquared dealings, characterizing Dish’s boardroom as a place where “no one crosses or even questions” Ergen.

Mark Lebovitch, one of the lawyers for the shareholders, suggested the Nevada court may give weight to those remarks.

“Judge Chapman’s findings not only undermine Ergen’s credibility, they contradict many of the defendants’ prior representations” in the Nevada case, Lebovitch told Reuters.

A lawyer for Ergen declined to comment.

LightSquared went bankrupt in 2012 after the Federal Communications Commission revoked its license to build a massive wireless network, citing possible GPS interference.

Ergen then bought about $1 billion of LightSquared loan debt, drawing a lawsuit from LightSquared alleging he did so secretly and in violation of a credit agreement barring competitors like Dish from owning its debt.

Ergen insisted the debt buys were not for Dish but for his personal portfolio. While Judge Chapman did not fully accept that explanation, it nonetheless could hurt Ergen in Nevada, where he is accused of putting himself before Dish shareholders.

The Nevada case is on hold until after LightSquared’s bankruptcy, so allegations are subject to change. But the conclusions of federal bankruptcy judges often wield some influence.

“It’s certainly going to matter, at least from an optics perspective,” said Jonathan Lipson, a bankruptcy expert and professor at Temple University’s Beasley School of Law.

That does not mean shareholders have an easy path to victory. Chapman ultimately concluded that Ergen was acting on Dish’s behalf in LightSquared, at least since April of 2013, potentially weakening the theory that he acted for his own profit. Shareholders will also have to overcome the fact that a Dish unit bid for LightSquared last year, rescinding the offer for reasons it said had nothing to do with Ergen.

Reporting by Nick Brown; Editing by Nick Zieminski

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