SP Special Opportunities, LLC v. Lightsquared Inc. (In re Lightsquared, Inc.)

• Decision Date: 07 October 2015
• Docket Number: No. 15–cv–2848 KBF.,15–cv–2848 KBF.
• Citation: 539 B.R. 232
• Parties: In re LIGHTSQUARED, INC., et al., Debtors. SP Special Opportunities, LLC, Appellant, v. Lightsquared Inc., et al., Appellees.
• Court: U.S. District Court — Southern District of New York

539 B.R. 232

In re LIGHTSQUARED, INC., et al., Debtors.

SP Special Opportunities, LLC, Appellant

v.Lightsquared Inc., et al., Appellees.

No. 15–cv–2848 KBF.

United States District Court, S.D. New York.

Signed Oct. 7, 2015.

Matthew Scott Barr, Michael Lane Hirschfeld, Alan Joseph Stone, Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, CA, Andrew Michael Leblanc, Milbank, Twwed, Hadley & McCloy, LLP (DC), Washington, DC, David M. Friedman, Adam L. Shiff, Kasowitz, Benson, Torres & Friedman L.L.P., New York, N.Y., Aaron Stephen Rothman, Brad Eric Scheler, Peter Brian Siroka, Fried, Frank, Harris, Shriver & Jacobson LLP, New York, N.Y., for Appellees.

James C. Dugan, Willkie Farr & Gallagher LLP (N.Y.), New York, N.Y., for Appellant.

OPINION & ORDER

KATHERINE B. FORREST, District Judge.

This is a second appeal from the Bankruptcy Court's (Chapman, J.) order dated March 27, 2015, confirming the debtors'¹ Modified Second Amended Joint Plan Pursuant to Chapter 11 of the Bankruptcy Code (the “Plan”).² (Appellant SP Special Opportunities, LLC's Appendix on Appeal (“App.”) at A00001–216, Bankr. Dkt. No. 2276, ECF No. 7–2.) At the time of confirmation, the sole remaining objections to the Plan were those of's former Chief Executive Officer (“CEO”), Sanjiv Ahuja, the subject of this Court's prior Opinion & Order in this matter. (See App. A00323, March 26, 2015 Confirmation Hearing Tr. 104–06, Bankr. Dkt. 2312.)

This second appeal is brought by SP Special Opportunities, LLC (“SPSO”), the largest unsecured lender to one of the debtors, LightSquared LP (“LP”). (Notice of Appeal, ECF No. 1.) DISH Network Corporation (“DISH”) and EchoStar Corporation (“EchoStar”) filed a document entitled “Joinder and Statement of DISH Network Corporation and EchoStar Corporation in Support of Appeal of Appellant [SPSO].” (ECF No. 14.) Neither of these entities filed its own Notice of Appeal. SPSO is wholly-owned and controlled by Charles Ergen, co-founder, Chairman and CEO of DISH; Ergen also separately holds the position of Chairman of EchoStar. (Appellant's Br. 2, ECF No. 7.)

SPSO appeals the Bankruptcy Court's inclusion of a particular injunctive provision (which the parties refer to as “Injunction B”) in its Order Confirming Modified Second Amended Joint Plan Pursuant to Chapter 11 of the Bankruptcy Code (“Confirmation Order”). SPSO argues that Injunction B both (1) inappropriately extends the jurisdiction of the Bankruptcy Court post-confirmation, and (2) is framed too broadly and without sufficiently definite terms, thus failing to comply with the requirements of Fed. R. Civ. P. 65. For the reasons set forth below, the Court agrees with SPSO's latter proposition. The Court therefore vacates Injunction B and remands for the Bankruptcy Court's reconsideration.

I. FACTS PERTINENT TO THIS APPEAL³

The injunction at issue on this appeal originated in the events commencing in May 2012, when LightSquared commenced a voluntary bankruptcy case pursuant to chapter 11 of the Bankruptcy Code. In re: LightSquared Inc., 511 B.R. 253, 262–63 (Bankr.S.D.N.Y.2014). An adversary proceeding was commenced by one of the debtors on August 6, 2013, against Ergen, DISH, EchoStar, an acquisition vehicle named “L–B and Acquisition, LLC (“LBAC”), SPSO” and others, alleging, inter alia, inequitable conduct. Id. at 263. LightSquared intervened in that proceeding a few weeks later. Id. The adversary proceeding arose from SPSO's and Ergen's conduct in connection with Ergen's (through SPSO) acquisition of approximately $844 million dollars of the senior secured debt of LightSquared LP during the period from April 2012 through April 2013. Id. at 260–61. LightSquared asserts that it was this conduct that prompted the inclusion of Injunction B in the Plan. As a result, the Bankruptcy Court's findings with respect to Ergen's and SPSO's conduct are relevant to this appeal.

A. Adversary Proceeding on Equitable Subordination

The Bankruptcy Court held a trial in the adversary proceeding, at which Ergen and a number of other individuals testified. The Court was seeking to determine whether SPSO's claim against the estate based on the debt Ergen had acquired should be disallowed or, alternatively, whether it should be equitably subordinated by virtue of SPSO's conduct in connection with its debt purchases and/or in connection with these chapter 11 cases. Id. at 261. The Court found that SPSO's (and through it, Ergen's) conduct was such as to warrant equitable subordination in an amount to be later determined. Id. at 315.

The Court made a number of findings of fact in support of its decision, including that Ergen used SPSO (and a company called Sound Point) as a front for purchases he made from a personal account. Id. at 275–76. Ergen's goal was to obtain a blocking position in LP's debt to allow SPSO to enforce “certain rights” during the bankruptcy proceeding. Id. at 280. The Court found that Ergen acted, in part, to benefit DISH and that members of DISH's and EchoStar's management and boards were aware of his actions. Id. at 281. Ergen was involved in managing the strategic direction of DISH and EchoStar and this included the companies' attempts to acquire or merge with spectrum-owning companies. Id. Pursuant to that end, DISH contemplated making a bid for LP. Id. at 288. But before DISH acted, Ergen himself submitted a bid for LP's spectrum assets for $2 billion. Id. at 289. The Court found that LP was a strategic investment for DISH and EchoStar, and not a personal investment by Ergen. Id. at 293–97. Among its bases for that determination, the Court found that “DISH and EchoStar have a history of purchasing distressed or discounted debt of their targets as a step toward an eventual acquisition, including acquiring a blocking position in distressed satellite companies in bankruptcy, such as DBSD and TerreStar, enabling them to acquire the companies' spectrum assets at a discount.” Id. at 294.⁴ The Court further found that LightSquared's spectrum assets filled a need for DISH and EchoStar because LightSquared had “the only significant source of available uplink spectrum to acquire” and found that Lightsquared's spectrum could be paired with the existing spectrum that DISH and Ergen had previously acquired from DBSD. Id. at 295.

The Bankruptcy Court found that Ergen and SPSO engaged in various actions to thwart LightSquared's efforts to complete its reorganization plan.⁵ For instance, it found that SPSO delayed closing hundreds of millions of dollars in LP debt trades for several months, during a critical time in LightSquared's bankruptcy case, and that it had engaged in a “stunning lack of candor” on this issue. Id. at 305, 346. The Court found that Ergen had taken actions to insure that the delays occurred—it also found that the delays were unrelated to any true business need and provided no economic benefit. Id. at 306–308. SPSO's failure to close the trades did, however, impede LightSquared and the Ad Hoc Secured Lender Group's efforts to work out a consensual plan of reorganization. Id. at 311. Sound Point (the other company that Ergen used as a front) took additional actions which further impeded completion of a reorganization plan, including buying additional large blocks of debt; this prevented LightSquared from knowing with whom it needed to deal to complete reorganization. Id. In June 2013, after Ergen revealed his LP debtholdings, SPSO joined the Ad Hoc Secured Group and, by virtue of its debt holdings as of that time, became the controlling member.Id. at 311–13. From its position within the Ad Hoc Group, SPSO prevented a consensual deal from being reached. Id.

The Bankruptcy Court found that while SPSO's debt purchases were not technically prohibited, they violated the “Eligible Assignee” provision in certain of LightSquared's loan agreements. Id. at 315–16. That provision prohibited direct competitors of LightSquared (the borrower) from acquiring the LP's debt. Id. at 315–16. DISH and EchoStar were expressly included on a scheduled list of disqualified companies. Id. Although SPSO was an “Eligible Assignee” as a technical matter, the Court determined that its acquisition of LP debt violated the spirit of the loan agreement. Id. at 317.

The Court concluded that, based on its numerous and detailed findings of fact, “the conduct of Mr. Ergen and SPSO, undertaken on behalf of or for the benefit of DISH, was an end-run around the Eligible Assignee provisions of the Credit Agreement that breached the implied covenant of good faith and fair dealing arising under the Credit Agreement.” Id. at 333. Relying on SPSO's violation of the covenant of good faith and fair dealing and its misconduct in connection with the delayed closing of LP debt trades, the Court ultimately concluded that although SPSO's claim was not void or voidable and therefore would not be disallowed, it was appropriate to equitably subordinate SPSO's claim to the extent of any injury to innocent creditors. Id. at 339–41, 345–46.

B. Rejection of Third Amended Joint Plan

A month after the Bankruptcy Court issued its decision on equitable subordination, on July 11, 2014, it denied confirmation of the Debtors' “Third Amended Joint Plan.” In re: LightSquared Inc., 513 B.R. 56 (Bankr.S.D.N.Y.2014). The Court found, inter alia, that the Third Amended Joint Plan was not fair and equitable with respect to a particular class of secured claims.⁶ Id. at 93. In rendering its decision, the Court referenced its findings in the adversary proceeding with regard to SPSO and Ergen's conduct, and incorporated a number of those specific findings directly. See id. at 86–89. The Court reiterated that SPSO's claim was subject to equitable subordination on the basis of its conduct, referencing specifically the failure to close trades and Ergen's alleged submission of a personal bid for LightSquared's assets when in fact the bid was for the benefit of DISH. Id. at 85–86.

The Court also referenced a series of communications between Ergen and...