In re Dish Network Corporation Shareholder Litigation

Court: District Court, Clark County, Nevada
Case Number: cv A-13-686775-B
Judge: Hon. Elizabeth Gonzalez
Case Contacts: Mark Lebovitch, Jeroen van Kwawegen, Adam Hollander

This case arises from a remarkable corporate governance breakdown at DISH Network Corporation (“Dish” or the “Company”).  Dish is a satellite TV provider that has spent billions of dollars to acquire spectrum licenses.  In April 2013, Dish’s chairman and controlling shareholder, Charles W. Ergen (“Ergen”) completed the purchase of more than $1 billion of debt of a bankrupt company called LightSquared before launching a personal $2 billion bid for LightSquared’s spectrum assets.  Dish’s board of directors (the “Board”) created a special committee (the “Special Committee”) in connection with Dish’s possible bid for LightSquared’s spectrum assets—a bid that would directly compete with the personal bid of Dish’s chairman and controlling shareholder.  On July 23, 2013, Dish submitted a $2.2 billion bid for LightSquared’s assets as part of a reorganization plan that LightSquared’s secured lenders, including Ergen, submitted for approval in the LightSquared bankruptcy.  If approved, Dish’s bid ensures that Ergen will receive hundreds of millions of dollars in personal profit on his $1 billion debt purchases. 

It quickly became clear that something had gone terribly wrong with the Special Committee.  On July 25, 2013 – only two days after Dish submitted the $2.2 billion bid that will significantly enrich Ergen if approved – one independent member of the Board who is believed to have been a member of the Special Committee, abruptly resigned from his position.  The resignation of this director was so sudden and abrupt that Dish was at risk of being delisted from NASDAQ for failure to comply with minimum listing requirements.

Additional problems soon emerged.  On August 6, 2013, LightSquared’s principal shareholder, Harbinger, filed a complaint in bankruptcy court against Ergen and Dish, accusing them of bad faith conduct and seeking $4 billion in compensatory and punitive damages.  Among other things, Harbinger alleges that Ergen purchased the $1 billion in LightSquared debt in a way that would give Dish an unfair advantage in the LightSquared bankruptcy and that, because Ergen controls Dish, those purchases and any bad faith intent can be attributed to Dish.  The crux of Harbinger’s complaint is that Dish is not independent from Ergen and acts as Ergen’s co-conspirator in trying to improperly acquire LigthSquared’s assets.  LightSquared has filed a notice of intent to join this action against Ergen and Dish. 

On August 30, 2013, Harbinger submitted a plan of reorganization that competes with the July 23, 2013 plan submitted by the secured lenders.  Under the terms of Harbinger’s proposed plan, LightSquared’s assets will not be sold.  According to Harbinger, one of the reasons for approving its plan over the plan proposed by the secured lenders (involving the sale of LightSquared’s assets) is that Dish is not acting in good faith in the LightSquared bankruptcy.  Moreover, based on rulings finding that Dish was not acting in good faith in different bankruptcy proceedings three years ago, Harbinger alleges that this is not the first time that Dish has acted in bad faith in bankruptcy proceedings.  Harbinger’s allegations may result in Dish not being able to purchase LightSquared’s spectrum assets. 

Following investigation, Jacksonville Police & Fire Pension Fund (“Plaintiff”) filed a derivative action on behalf of Dish in Clark County, Nevada—the State where Dish is incorporated.  The action seeks to isolate Ergen from Dish’s pursuit of LightSquared’s assets in bankruptcy, and to recover damages caused by Ergen’s and the Board’s alleged misconduct.  On August 13, 2013, Plaintiff filed a motion requesting expedited discovery in anticipation of the forthcoming motion seeking to enjoin Ergen’s involvement with Dish’s bid for LightSquared’s spectrum assets.  Defendants filed opposition papers on August 28, 2013.  Plaintiff’s reply papers were filed on September 5, 2013 and a Motion for Preliminary Injunction and For Discovery on an Order Shortening Time on September 12, 2013. Defendants filed their opposition on September 18, 2013 and oral argument was held on September 19.

On November 8, 2013 and November 19, 2013 Plaintiff filed supplements to its motion for preliminary injunction because Dish’s controlling shareholder, Charles W. Ergen, refused to allow independent directors to oversee a conflicted transaction – a basic corporate governance safeguard that any appropriately run public company would implement. Defendants filed their opposition on November 20, 2013 and a hearing was held on November 25, 2013. On November 27, 2013 Plaintiff’s motion for preliminary injunction was granted in part.

On July 25, 2014, Plaintiff filed its Second Amended Complaint.  On August 29, 2014 the Special Litigation Committee (“SLC”) filed a Motion to Dismiss for Failure to Plead Demand Futility, and Defendants filed motions to dismiss. On September 19, 2014 and September 25, 2014 Plaintiff opposed those motions, and on October 2, 2014 Defendants filed their replies in further support of their motions to dismiss.

On October 25, 2014 the SLC filed a report regarding its investigation of the claims and allegations asserted in the Second Amended Complaint and determined that was in the best interest of Dish to not pursue the claims asserted.

On November 18, 2014 the SLC filed a Motion to Defer to the SLC’s Determination that the Claims Should be Dismissed. On December 10, 2014 Plaintiffs filed their opposition and on January 5, 2015 the SLC filed their reply.

At oral argument on January 12, 2015, the Court ordered discovery into the SLC's independence and the good faith and thoroughness of its investigation. Plaintiff and the SLC are due to file supplemental briefing on the SLC's Motion to Defer on June 18, 2015 and July 1, 2015 respectively.

On July 16, 2015, the Court heard argument on all pending motions, and granted the SLC’s Motion to Defer.  The court entered judgment dismissing the case on October 20, 2015.

BLB&G and Plaintiff have appealed the Court’s decision to defer to the SLC’s judgment and dismiss the case.  Plaintiff’s opening appeal brief is due March 8, 2016, with the SLC’s brief in response due April 7, 2016 and Plaintiff’s reply due May 9, 2016.

BLB&G continues to aggressively prosecute this Action.