Harbinger Capital Partners LLC v. Ergen

103 F. Supp. 3d 1251, 2015 U.S. Dist. LEXIS 55349, 2015 WL 2128901
CourtDistrict Court, D. Colorado
DecidedApril 28, 2015
DocketCivil Action No. 14-cv-1907-WJM-KMT
StatusPublished
Cited by2 cases

This text of 103 F. Supp. 3d 1251 (Harbinger Capital Partners LLC v. Ergen) is published on Counsel Stack Legal Research, covering District Court, D. Colorado primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Harbinger Capital Partners LLC v. Ergen, 103 F. Supp. 3d 1251, 2015 U.S. Dist. LEXIS 55349, 2015 WL 2128901 (D. Colo. 2015).

Opinion

ORDER GRANTING MOTION TO DISMISS

William J. Martinez, United States District Judge

Plaintiffs Harbinger Capital Partners LLC, HGW U.S. Holding Company LP, Blue Line DZM Corp., and Harbinger Capital Partners SP, Inc. (collectively, “Harbinger”) invested heavily in a company named LightSquared, which was building a nationwide wireless broadband net-' work. (ECF No. 1 ¶ 4.) Harbinger brings suit against the following individuals and entities, to whom the Court will refer collectively as “Defendants”: Charles W. Er-gen (“Ergen”), DISH Network Corporation (“DISH”), L-Band Acquisition LLC (“LBAC”), SP Special Opportunities LLC (“SPSO”), Sound Point Capital Management LP (“Sound Point”), and Stephen Ketchum (“Ketchum”). Harbinger claims that Defendants engaged in wire fraud, mail fraud, and other unlawful acts to disrupt Harbinger’s control of LightSquared during LightSquared’s proceedings in the U.S. Bankruptcy Court for the Southern District of New York (“Bankruptcy Court”). (See generally ECF No. 1.) Harbinger therefore asserts a civil cause of action under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1962, and various related claims. (Id.)

Before the Court is Defendants’ Motion to Dismiss the Complaint (“Motion”). (ECF No. 39.) For the reasons stated below, the Court agrees with Defendants that this lawsuit violates the prohibitions on claim-splitting and collateral attacks, and the Motion is therefore granted.

I. LEGAL STANDARD

Defendants bring their Motion largely under Federal Rule of Civil Proce[1254]*1254dure 12(b)(6). Under Rule 12(b)(6), a party may move to dismiss a claim in a complaint for “failure to state a claim upon which relief can be granted.” The Rule 12(b)(6) standard requires the Court to “assume the truth of the plaintiffs well-pleaded factual allegations and view them in the light most favorable to the plaintiff.” Ridge at Red Hawk, LLC v. Schneider, 493 F.3d 1174, 1177 (10th Cir.2007). In ruling on such a motion, the dispositive inquiry is “whether the complaint contains ‘enough facts to state a claim to relief that is plausible on its face.’ ” Id. (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). Granting a motion to dismiss “is a harsh remedy which must be cautiously studied, not only to effectuate the spirit of the liberal rules of pleading but also to protect the interests of justice.” Dias v. City & Cnty. of Denver, 567 F.3d 1169, 1178 (10th Cir.2009) (internal quotation marks omitted). “Thus, ‘a well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable, and that a recovery is very remote and unlikely.’ ” Id. (quoting Twombly, 550 U.S. at 556, 127 S.Ct. 1955).

In this case,- both parties have extensively referred to, quoted from, or attached various filings and orders from the Bankruptcy Court. The Court may consider these materials without converting the motion to dismiss to one for summary judgment. See Pace v. Swerdlow, 519 F.3d 1067, 1072-73 (10th Cir.2008) (district court properly took judicial notice of other courts’ records); Tal v. Hogan, 453 F.3d 1244, 1264 n. 24 (10th Cir.2006) (district court may take judicial notice of “facts which are a matter of public record” without converting a Rule 12(b)(6) motion into a summary judgment motion).

II. FACTUAL BACKGROUND

This dispute already has a long history in the Bankruptcy Court, much of which is set forth in detail in the Bankruptcy Court’s' published orders: In re LightSquared Inc., 504 B.R. 321 (Bankr.S.D.N.Y.2013) (“LightSquared 7”); In re LightSquared Inc., 511 B.R. 253 (Bankr.S.D.N.Y.2014) (“LightSquared II”); and In re LightSquared Inc., 513 B.R. 56 (Bankr.S.D.N.Y.2014) (“LightSquared III”). The following facts appear sufficient to resolve the Motion.

A. Harbinger and LightSquared

Harbinger owns about 82% of LightSq-uared, which is in the business of building a new nationwide broadband wireless network. (ECF No. 1 ¶¶ 44-45.) LightSq-uared and its shareholders (including Harbinger) are parties to a Stockholders’ Agreement that grants “expansive rights” to Harbinger in light of Harbinger’s significant investment. (Id. ¶¶ 46-48.) Harbinger claims that its contractual rights to “control LightSquared have a value independent of, and incremental to, the value of Harbinger’s equity interests.” (Id. ¶ 48.)

LightSquared ran into difficulties and consequently filed for bankruptcy in May 2012. (Id. ¶¶ 50-51.) LightSquared’s predicament had by this time caught the attention of Ergen, majority owner of DISH and chairman of its board, who had long been hoping to put DISH into the wireless broadband business and who therefore coveted the radio frequency spectrum licensed to LightSquared. (Id. ¶¶ 22, 53.) Under Ergen’s direction, DISH had gone after other bankrupt or distressed companies’ spectrum. (Id. ¶ 54.) In one instance, DISH acquired spectrum (that of a company named DBSD) through bank[1255]*1255ruptcy court machinations that the Second Circuit eventually found impermissible. See In re DBSD N. Am., Inc., 634 F.3d 79, 104-05 (2d Cir.2011). Harbinger claims that Ergen hatched another unlawful scheme to obtain a similar result through LightSquared’s bankruptcy proceedings. (ECF No. 1 ¶ 68.)

The details of this scheme are mostly irrelevant for present purposes. The short of it is that Ergen wanted DISH to purchase a substantial portion of LightSq-uared’s outstanding debt, thus permitting DISH to exert significant influence in the bankruptcy proceedings. (Id. ¶¶ 5-7.) Er-gen learned, however, that LightSquared and its lenders were parties to a “Credit Agreement,” contractually prohibiting lenders from selling debt to individuals or to competing businesses. (Id. ¶ 65.) DISH was considered a competitor, meaning that neither DISH nor Ergen personally (who possesses significant personal wealth) could purchase LightSquared’s debt. (Id. ¶¶ 65-67.) Ergen therefore enlisted Ketchum, an outside banker and friend, to have Ketchum’s investment firm, Sound Point, set up SPSO and its sole member, SO Holdings. (Id. ¶¶ 22, 69-70.) Ergen himself was the sole member of SO Holdings. (Id. ¶ 22.) SPSO then began purchasing large blocks of LightSquared debt, paying nearly $800 million and eventually becoming LightSquared’s largest creditor. (Id. ¶ 71.)

Ergen, through SPSO, allegedly used these debt purchases to disrupt LightSq-uared’s ability to negotiate a reorganization plan with its creditors.

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103 F. Supp. 3d 1251, 2015 U.S. Dist. LEXIS 55349, 2015 WL 2128901, Counsel Stack Legal Research, https://law.counselstack.com/opinion/harbinger-capital-partners-llc-v-ergen-cod-2015.