LightSquared seeks stay of Harbinger GPS industry, United States suits

By Caroline Salls

Pittsburgh, Oct. 8 – LightSquared Inc. asked the U.S. Bankruptcy Court for the Southern District of New York to stay Harbinger Capital Partners, LLC’s litigation efforts against the GPS industry and the United States until the effective date of a plan of reorganization or a ruling on a permanent injunction is made, according to a Wednesday court filing.

Since its bankruptcy filing, LightSquared said Harbinger has filed two lawsuits seeking to recover its $1.9 billion investment by claiming that third parties forced LightSquared into Chapter 11, thereby damaging Harbinger. LightSquared said those lawsuits assert derivative causes of action that are either direct property of its bankruptcy estates or overlap with or affect estate property.

LightSquared said Harbinger is subject to the automatic stay imposed by the bankruptcy filing, “which exists to prevent third parties, including equity holders such as Harbinger, from attempting to jump the Bankruptcy Code’s priority scheme and seek special recovery for their alleged losses outside the bankruptcy process.”

Before its plan effective date, LightSquared said it will seek a ruling that the derivative causes of action asserted by Harbinger in its lawsuits are property of LightSquared’s estates and should be permanently enjoined.

According to the motion, Harbinger sued GPS manufacturers and industry associations responsible for stalling LightSquared’s planned nationwide broadband network, raising claims that mirror LightSquared’s own claims against the same defendants.

In addition, Harbinger sued the United States to recover the same investment, claiming that the government unlawfully took Harbinger’s property and breached a contract by effectively suspending LightSquared’s authorization to deploy its network.

“The Bankruptcy Code does not allow an investor, like Harbinger, to recoup its investment in a bankrupt company by circumventing the bankruptcy process,” LightSquared said in the motion.

“Quite the opposite: the fundamental purpose of the bankruptcy case is to centrally gather, protect and equitably distribute the debtor’s property, including its causes of action against third parties.

“Both the automatic stay and principles of equity protect LightSquared and its stakeholders from opportunistic stakeholders like Harbinger, who seek to usurp claims or causes of action belonging to the estates and spawn satellite litigation that would interfere with reorganization efforts.

“If Harbinger’s claims against the GPS industry and the United States proceed, Harbinger could accomplish outside of the bankruptcy what it could not do by participating in the reorganization: unilaterally leapfrogging over LightSquared’s creditors and preferred equity holders in violation of the absolute-priority rule entitling senior stakeholders to payment before equity holders.”

A hearing is scheduled for Oct. 29.

LightSquared is a Reston, Va.-based wholesale-only 4G-LTE network integrated with satellite coverage. The company filed for bankruptcy on May 14, 2012 under Chapter 11 case number 12-12080.

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