Harbinger Capital Partners LLC v. Ergen (In re LightSquared Inc.)
Harbinger Capital Partners LLC v. Ergen (In re LightSquared Inc.)
Opinion of the Court
Chapter 11
MEMORANDUM DECISION GRANTING MOTIONS TO DISMISS COMPLAINT
TABLE OF CONTENTS
BACKGROUND.. .330
I. The Debtors and the Commencement of the Bankruptcy Cases... 330
II. The LightSquared LP Credit Agreement. . .330
III. The Defendants... 331
IV. The Defendants’ Alleged Scheme.. .332
PROCEDURAL HISTORY.. .333
STANDARD OF REVIEW.. .334
DISCUSSION.. .335
I.Harbinger’s Equitable Disallowance Claim (Count One) is Dismissed with Prejudice. . .335
A. Applicable Statutory Provisions and Case Law.. .336
1. Section 502 of the Bankruptcy Code...336
2. Section 510 of the Bankruptcy Code...336
3. Applicable Case Law.. .336
B. The Bankruptcy Code Does Not Permit Equitable Disallowance... 339
1. Statutory Interpretation... 339
a. The Plain Language of Section 502 Does Not Permit Equitable Disallowance ...339
b. The Court Cannot Equitably Disallow a Claim Under Section 105(a)... 341
c. Section 510(c) Provides an Equitable Remedy of Subordination, Not Disallowance ...342
2.Some Observations on the Use of Legislative History.. .343
II. Harbinger Has Failed to State a Claim for Fraud or in Tort Against the Ergen Defendants... 344
A. Fraud (Count Two)... 344
1. Defendants’ Alleged Material False Representations and Omissions... 345
a. Material False Representations... 345
b. Material Omissions.. .347
2. Defendants’Intent.. .349
3. Harbinger’s Reliance... 350
B. Tortious Interference with (i) Prospective Economic Advantage with LightSquared Creditors and (ii) the Jef-feries Relationship (Counts Four and Five)... 351
1. Harbinger’s Allegations of Tortious Interference with Creditor Relationship. . .351
2. Harbinger’s Allegations of Tortious Interference with Jefferies Relationship. . .352
3. Harbinger Has Not Pled Facts Sufficient to Demonstrate Tortious Interference with Either the Creditor Relationship or the Jefferies Relationship.. .353
C. Unfair Competition (Count Six)... 353
D. Civil Conspiracy (Count Seven)... 355
IV. Harbinger Has Failed to State a Claim for Fraud or in Tort Against the Sound Point Capital Defendants... 356
V. Objection to the Claim of SPSO under Section 502 of the Bankruptcy Code (Count Eight)... 357
CONCLUSION.. .358
Before the Court are the motions (the “Motions to Dismiss”)
As stated in the Amended Complaint, Harbinger “brings this action against Er-gen and entities he controls, including DISH, EchoStar, LBAC, SPSO, and SO Holdings, to seek redress for Defendants’ fraud and other tortious conduct aimed at misappropriating Harbinger’s control over and investment in LightSquared, and destroying Harbinger’s contractual rights and business opportunities relating to that investment.” Am. Compl. ¶ 1. More specifically, Harbinger alleges that DISH and EchoStar, acting through Mr. Ergen as their executive chairman, and with the assistance of Sound Point Capital and Mr. Ketchum in forming SPSO, engaged in subterfuge and fraudulently purchased certain secured debt obligations of LightSquared LP (the “Loan Debt”) issued under the Credit Agreement (as defined below), in order to gain control of LightSquared Inc. and its debtor subsidiaries (“LightSquared” or the “Debtors”) and derail Harbinger’s (i) control over and equity interest in the Debtors and their assets, (ii) plans for the reorganization of the Debtors, and (iii) attempts to gain exit financing for such reorganization. In addition, Harbinger alleges that Mr. Ergen and DISH/EehoStar, through LBAC, made a low-ball, bad-faith offer to purchase the Debtors’ wireless spectrum at a discount in order to confuse and deter other potential purchasers from making a reasonable bid for such assets. Harbinger asserts that the “Defendants’ fraudulent scheme has materially harmed Harbinger’s contractual rights and opportunities as LightSquared’s controlling shareholder, and will improperly provide Ergen and his entities with an unfair advantage as a bidder for the spectrum assets.... ” Id.
By their three separate Motions to Dismiss, each group of Defendants asserts, among other things, that the Amended Complaint fails to state a claim upon which relief can be granted pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure (the “Rules”), made applicable herein by Rule 7012 of the Federal Rules of Bankruptcy Procedure (the “Bankrupt
For the reasons set forth below, the Motions to Dismiss are granted as follows: (i) with respect to Count One, the Motion of the Ergen Defendants to Dismiss the Amended Complaint is granted, and Count One is dismissed with prejudice; (ii) with respect to Counts Two, Four, Five, Six, and Seven, the Motion of the Ergen Defendants to Dismiss the Amended Complaint is granted; (iii) with respect to Counts Two, Four, Five, Six, and Seven, the Motion of the DISH Defendants to Dismiss the Amended Complaint is granted; (iv) with respect to Counts Three, Six, and Seven, the Motion of the Sound Point Capital Defendants to Dismiss the Amended Complaint is granted; and (v) with respect to Count Eight, the Motion of the Ergen Defendants to Dismiss the Amended Complaint is granted, and Count Eight is dismissed without prejudice to the rights of any party-in-interest, including Harbinger, to seek disallowance of SPSO’s claim under section 502 of the Bankruptcy Code on grounds not inconsistent with this Decision. Because the Debtors’ intervention in this Adversary Proceeding was not based on a separate complaint but rather on a statement linked to the Amended Complaint [Dkt. No. 15] (the “Debtors’ Intervention”), the Debtors are granted leavé to plead and file an amended eom-
BACKGROUND
The Court assumes general familiarity with the widely-publicized background facts of the Debtors’ chapter 11 cases (the “Bankruptcy Cases”) and the dispute between Harbinger and the Debtors, on the one hand, and Mr. Ergen and the DISHTEchoStar parties on the other hand, and will provide only the most relevant facts for purposes of this Rule 12(b)(6) Decision.
I. The Debtors and the Commencement of the Bankruptcy Cases.
LightSquared is a provider of communications and broadband services; it has been delivering satellite-based mobile voice and data services since 1995 to hundreds of thousands of devices used in the public safety, security, transportation, fleet management, and asset tracking sectors. To provide these services, LightSquared licenses spectrum from the Federal Communications Commission (“FCC”). Harbinger, an investment fund, indirectly owns in excess of 82% of the equity of LightSquared. Harbinger is controlled by Mr. Philip Falcone. Am. Compl. ¶ 29.
For over ten years, the Debtors have been engaged in efforts to develop a next-generation ancillary terrestrial network (“ATC Network”) that would employ both satellite service and ground-based anten-ms to provide nationwide state-of-the-art “4G-LTE” (Fourth Generation — Long Term Evolution) broadband mobile services. Id. ¶ 30. In pursuit of that goal, LightSquared has participated in extensive regulatory proceedings before the FCC. In 2010, the FCC approved the ATC Network and imposed certain build-out requirements on LightSquared.
In February 2012, the FCC issued a formal notice proposing to suspend indefinitely the Debtors’ plan to build out the ATC Network. Following the issuance of the FCC Notice, on May 14, 2012 (the “Petition Date”), the Debtors commenced these Bankruptcy Cases by filing voluntary petitions for relief under chapter 11 of title 11 of the Bankruptcy Code. The Debtors continue to operate their businesses and manage their properties as debtors-in-possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. Id. ¶¶ 32-33.
II. The LightSquared LP Credit Agreement.
In order to raise the funds necessary to accomplish the ATC Network build-out,
The Credit Agreement includes a series of provisions that, as alleged by Harbinger, were meant to “protect LightSquared and Harbinger from opportunistic competitors, such as Defendants, who might pose as lenders to develop a position in LightSquared’s capital structure.” Am. Compl. ¶ 38. In particular, Section 10.04 of the Credit Agreement permits an existing lender to “assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement.” Credit Agreement § 10.04(b).
III. The Defendants.
DISH is a provider of broadband and satellite television services and is the second largest satellite television provider in the United States. DISH Defs.’ Mem. (as defined below) 4. As alleged in the Amended Complaint, DISH, a competitor of LightSquared, aims to expand its broadband offerings, including by building out an integrated terrestrial network, similar
EchoStar is a satellite communications company that operates, leases, or manages a number of satellites, including the satellites that provide services to EchoStar’s sister company, DISH. Id. ¶ 19; DISH Defs.’ Mem. 4. EchoStar and DISH are publicly traded companies, and neither company owns an interest in the other. Id.
Charles W. Ergen is the founder, the Executive Chairman of the boards of directors, an employee, and the majority owner of both DISH and EchoStar. As of November 30, 2012, Mr. Ergen controlled approximately 88% of DISH’s voting shares and approximately 80% of EehoS-tar’s voting shares. Am. Compl. ¶ 18.
LBAC is a wholly-owned subsidiary of DISH and is the “stalking horse” bidder in connection with the upcoming auction of certain assets of LightSquared LP, including the spectrum. DISH Defs.’ Mem. 4; Am. Compl. ¶ 21. Harbinger alleges that LBAC was formed for the sole purpose of bidding on LightSquared LP’s spectrum assets. Id. ¶ 21.
SPSO is an investment vehicle organized under the laws of Delaware, with headquarters in New York. SPSO’s sole member and manager is SO Holdings, which in turn has Mr. Ergen as its sole member and managing member. Am. Compl. ¶¶ 22-23. SPSO was formed on or about May 16, 2012, at Mr. Ergen’s direction, by Sound Point Capital. Id. ¶ 22. SPSO has been acquiring debt of LightSquared LP since at least April 2012,
Sound Point Capital is an investment management and advisory firm; it serves as trading manager and investment advis- or for SPSO and facilitates and advises SPSO on its investments and investment strategies. Am. Compl. ¶ 24. Stephen Ketchum is Sound Point Capital’s founder and managing member, and he serves as the trading manager of SPSO. Id. ¶ 25. Mr. Ketchum is a former banker to DISH and has a longstanding relationship with Mr. Ergen, having worked with EchoStar since its founding. Id. ¶¶ 24-25. Sound Point Capital and Mr. Ketchum do not own any interest in SPSO or SO Holdings, none of their employees or representatives is employed by SPSO or SO Holdings, and they do not own for their own benefit any debt securities issued by any of the Debtors, including Loan Debt. Sound Point Capital Defs.’ Mem. (as defined below) 4.
IV. The Defendants ’ Alleged Scheme.
Harbinger alleges that, in order to circumvent the trading restrictions in the Credit Agreement, Mr. Ergen, taking direction from DISH and EchoStar, engaged Sound Point Capital and Mr. Ketchum to form SPSO, an investment vehicle created for the sole purpose of purchasing substantial quantities of Loan Debt. SPSO began making purchases of Loan Debt in April 2012;
Harbinger further alleges that SPSO and the Sound Point Capital Defendants (at the direction of Mr. Ergen, DISH, and EchoStar) concealed the connection between SPSO, Mr. Ergen, and “Disqualified Companies” DISH and EchoStar, despite the inquiries of Harbinger and the Debtors. Through SPSO, Harbinger maintains, “Defendants fraudulently infiltrated the senior-most tranche of LightSquared’s capital structure, secretly amassing, based on knowing misrepresentations of fact, a position as the single largest holder of LightSquared’s [Loan Debt].” Am. Compl. ¶ 2.
In addition, Harbinger alleges that Defendants purposefully and strategically delayed the closing of trades of Loan Debt to prevent Harbinger from being able to (i) successfully negotiate a plan of reorganization with the Debtors’ creditors during the Debtors’ exclusive period, and (ii) secure exit financing for the Debtors’ reorganization. See id. ¶¶ 7-9. Finally, Harbinger asserts that Defendant LBAC was formed to make a “low ball” offer for LightSq-uared LP’s spectrum to create doubt and confusion among potential investors as to the true value of the spectrum assets. See id. ¶ 10. Harbinger alleges that the Defendants all worked together at the behest of Mr. Ergen, DISH, and EchoStar to orchestrate a fraud that would result in the wresting of control of the Debtors away from Harbinger to the advantage of its competitors.
PROCEDURAL HISTORY
Harbinger commenced this Adversary Proceeding by filing a complaint (the “Complaint”) against the Defendants [Dkt. No 1]. The Complaint asserted seven causes of action against the Defendants: (i) Equitable Disallowance against SPSO (Count One); (ii) Fraud against Mr. Er-gen, SPSO, SO Holdings, DISH, EchoStar, and LBAC (Count Two); (iii) Aiding and Abetting Fraud against Sound Point Capital and Mr. Ketchum (Count Three); (iv) Tortious Interference with Prospective Economic Advantage against Mr. Ergen, SPSO, SO Holdings, DISH, EchoStar, and LBAC (Count Four); (v) Tortious Interference with Jefferies Relationship against Mr. Ergen, SPSO, SO Holdings, DISH, EchoStar, and LBAC (Count Five); (vi) Unfair Competition against all Defendants (Count Six); and (vii) Civil Conspiracy against all Defendants (Count Seven).
Notices of intervention were filed by (i) U.S. Bank National Association and MAST Capital Management, LLC (together, “U.S. Bank/MAST”), (ii) the Ad Hoc Secured Group,
On September 9, 2013, the Motions to Dismiss and memoranda in support were filed by (i) the Ergen Defendants [Dkt. No. 30] (the “Ergen Defendants’ Memorandum”), (ii) the DISH Defendants [Dkt. Nos. 33] (the “DISH Defendants’ Memorandum”), and (iii) the Sound Point Capital Defendants [Dkt. No. 35] (the “Sound Point Defendants’ Memorandum”). In support of their Motion to Dismiss, the Ergen Defendants also filed the Declaration of James C. Dugan, counsel for the Ergen Defendants [Dkt. No. 31].
On September 30, 2013, Harbinger filed the Amended Complaint [Dkt. No. 43], which (i) more expansively set forth its contentions that, at all relevant times, Mr. Ergen was acting in his capacity as an agent of DISH and/or EchoStar, and not as an individual or as an indirect owner of the SPSO Defendants, and (ii) bolstered its allegations that SPSO is a “subsidiary” of DISH and/or EchoStar via Mr. Ergen and, accordingly, is or should be considered to be a “Disqualified Company” under the Credit Agreement. By the Amended Complaint, Harbinger also asserts an additional cause of action — Objection to Claim of SPSO under section 502 of the Bankruptcy Code (Count Eight) — which is almost entirely predicated on the facts pled in the first forty-nine pages of the Amended Complaint.
On October 3 and 5, 2013, the Ergen Defendants, the Sound Point Capital Defendants, and the DISH Defendants each filed an additional memorandum of law in support of their respective Motions to Dismiss [Dkt Nos. 44^46].
On October 9, 2013, the Debtors filed a memorandum of law in opposition to the Motions to Dismiss, solely with respect to Counts One and Eight of the Amended Complaint [Dkt. No. 50] (the “Debtors’ Opposition”). Harbinger also filed a memorandum of law in opposition to the Motions to Dismiss, which was an impressive 96 pages in length. [Dkt. No. 51] (the “Harbinger Opposition”). Both memoran-da substantially rest on the argument that the Amended Complaint pleads in sufficient factual detail that SPSO is, or, by reason of the relationship between and among Mr. Ergen, SPSO, and the DISH/EchoStar parties, should be deemed to be a “Disqualified Company” under the terms of the Credit Agreement and was therefore not eligible to purchase the Loan Debt. U.S. Bank/MAST subsequently filed a Joinder to the Debtors’ Opposition [Dkt. No 53].
On October 22, 2013, the Ergen Defendants, the DISH Defendants, and the Sound Point Capital Defendants each filed a reply to the opposition of Harbinger to the Motions to Dismiss [Dkt. Nos. 59-61]. Included in the reply filed by the Ergen Defendants (the “Ergen Defendants’ Reply”) was a response to the Debtors’ Opposition.
On October 29, 2013, the Court held oral argument on the Motions to Dismiss and, after a recess, read into the record a brief preliminary ruling, subject in all respects to the Decision set forth herein.
STANDARD OF REVIEW
Under Rule 12(b)(6), to survive a motion to dismiss, a complaint must allege facts
In addition, when a complaint alleges fraud, the complaint is subject to the “heightened pleading requirements” of Rule 9(b), which requires a plaintiff to “state with particularity the circumstances constituting fraud.” Jalee Consulting Group, Inc. v. XenoOne, Inc., 908 F.Supp.2d 387, 394 (S.D.N.Y. 2012). Specifically, the complaint must “(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent.” Id. (quoting Lerner v. Fleet Bank, N.A., 459 F.3d 273, 290 (2d Cir. 2006)). “Allegations that are con-clusory or unsupported by factual assertions are insufficient” to satisfy the requirements of Rule 9(b). Premium Mortg. Corp. v. Equifax Info. Svcs., LLC., 583 F.3d 103, 108 (2d Cir. 2009).
DISCUSSION
I. Harbinger’s Equitable Disallowance Claim (Count One) is Dismissed with Prejudice.
Harbinger asserts that the claim of SPSO must be equitably disallowed due to its “grossly inequitable conduct.” Am. Compl. ¶ 93. Specifically, Harbinger maintains
In analyzing whether there exists a basis for equitable disallowance under the Bankruptcy Code, the Court must first turn to the relevant sections of the Bankruptcy Code. See, e.g., In re Caldor Corp., 303 F.3d 161, 167 (2d Cir. 2002) (“The task of resolving a dispute over the meaning of a provision of the Bankruptcy Code ‘begins where all such inquiries must begin: with the language of the statute itself.’ ”) (citation omitted). The words “equitable disal-lowance” do not appear anywhere in the Bankruptcy Code, nor was the remedy of equitable disallowance included in the text of the Bankruptcy Act. Accordingly, we must first turn to the provision of the Code dealing with the allowance of claims — section 502 — and also examine the provision mostly closely linked to the concept of equitable disallowance — section 510(c).
A. Applicable Statutory Provisions and Case Law.
1.Section 502 of the Bankruptcy Code.
Section 502 of the Bankruptcy Code, entitled “Allowance of claims or interests,” provides that a properly filed proof of claim is deemed allowed unless a party in interest objects. 11 U.S.C. § 502(a). Various other subsections of section 502 set forth the grounds for disallowing a claim, including section 502(b)(1), which authorizes disallowance because the claim is unenforceable under any agreement or applicable law. Section 502(b) provides: “[T]he court ... shall allow such claim in such amount, except to the extent that (1) such claim is unenforceable against the debtor and property of the debtor, under any agreement or applicable law....” 11 U.S.C. § 502(b). This language could not be plainer — if a claimant would be estopped under non-bankruptcy law from having a valid claim against the debtor, a party may seek disallowance of the claim under section 502(b)(1). Equitable disallowance is not one of the specified exceptions to the allowance of a claim articulated in section 502(b) or any other subsection of section 502.
2.Section 510 of the Bankruptcy Code.
Section 510 of the Bankruptcy Code addresses subordination of claims; specifically, section 510(c)(1) provides that, after notice and a hearing, the court may, “under principles of equitable subordination, subordinate for purposes of distribution all or part of an allowed claim to all or part of another allowed claim or all or part of an allowed interest to all or part of another allowed interest....” 11 U.S.C. § 510(c)(1). Section 510(c) does not, on its face, provide for the disallowance of any claim or interest based on principals of equity or otherwise.
3.Applicable Case Law.
Courts analyzing the question of equitable disallowance have most frequently focused on Pepper v. Litton, a storied 1939 case in which the Supreme Court affirmed
When Litton’s bankruptcy claim came before the District Court, it disallowed the claim and held that the trustee should recover the corporate assets purchased by Litton at the execution sale. Of particular significance is the fact that the District Court in Pepper concluded that the decision by the state court that the trustee was estopped from attacking the Litton judgment in state court did not prevent the bankruptcy court from considering the validity of the judgment. After reviewing the facts, the District Court then concluded (i) that Litton and Dixie “had made a ‘deliberate and carefully planned attempt’ to avoid ‘the payment of a just debt’ (ii) that Litton and Dixie “were ‘in reality the same’ and (iii) that “the alleged salary claims underlying the Litton judgment did not represent an ‘honest debt’ of the bankrupt corporation, being merely bookkeeping entries for the double purpose of lessening income taxes and of enabling Litton to appear as a creditor of the corporation in case it became financially involved.” Id. at 301, 60 S.Ct. 238. The Court of Appeals for the Fourth Circuit reversed, holding that the decision of the state court was res judicata. The Supreme Court reversed the Court of Appeals and affirmed the District Court’s ruling.
Relying on the District Court’s findings that Litton had executed a “general fraudulent plan” to use his long-dormant claims to impair the rights of a valid creditor from recovering from the debtor corporation, the Supreme Court upheld the disallowance of Litton’s claim. Id. at 311-12, 60 S.Ct. 238. Although Pepper generally refers to “disallowance” and “subordination” interchangeably, as if they were the same remedy, it identifies disallowance as the appropriate remedy for claims that “are fictitious or a sham.” Id. at 310, 60 S.Ct. 238. Thus, the Supreme Court’s holding in Pepper did not directly address whether such a remedy exists with respect to a claim that has a valid basis under applicable law but against which a party brings an equitable attack.
Other than Pepper v. Litton, which was decided under the Bankruptcy Act, no Bankruptcy Code case has been cited to the Court in which the claim of a creditor
In Adelphia I, the Official Committee of Unsecured Creditors commenced an adversary proceeding against approximately 3 80 defendants, including Adelphia’s bank lenders and other commercial and investment banks, asserting over 50 causes of action, one of which was equitable disal-lowance of all of the defendants' claims. In ruling on the defendants’ motions to dismiss, Judge Gerber denied the motions with respect to equitable disallowance, a ruling that was affirmed on appeal by District Judge McKenna (in Adelphia II). In his decision, Judge Gerber noted that, when textual analysis is inconclusive— here, sections 502 and 510 of the Bankruptcy Code are both silent, neither authorizing nor prohibiting equitable disallowance — the court should turn to legislative history. With respect to equitable disal-lowance, the court stated that it “is not writing on a clean slate” in two important respects: (i) relevant legislative history, and (ii) caselaw that holds that, on matters where the Code is silent, courts looks to pre-Code law.
This section is intended to codify case law, such as Pepper v. Litton, 308 U.S. 295, 60 S.Ct. 238, 84 L.Ed. 281 (1939), and Taylor v. Standard Gas and Electric Co., 306 U.S. 307, 59 S.Ct. 543, 83 L.Ed. 669 (1938), and is not intended to limit the court’s power in any way.... Nor does this subsection preclude a bankruptcy court from completely disallowing a claim in appropriate circumstances.22
Judge Gerber held that the court was not in a position to conclude that, by explicitly addressing equitable subordination in the Code, Congress intended to foreclose the possibility of equitable disallowance as another remedy under Pepper and its progeny. Id. at 72-73. The court noted, however, that, even if permissible, a penalty such as equitable disallowance will have to be evaluated in the context of whether it is appropriate based on the facts and circumstances of the case, as it is a “draconian” remedy. Id. at 73.
In Adelphia II, Judge McKenna affirmed Judge Gerber’s decision and added his own nuanced reading of the legislative history, observing that, while the legislative history neither mandates nor prohibits
B. The Bankruptcy Code Does Not Permit Equitable Disallowance.
With enormous respect to those courts who have held to the contrary, this Court holds that the Bankruptcy Code, pursuant to section 510(c) or otherwise, does not permit equitable disallowance of claims that are otherwise allowable under section 502(b) of the Bankruptcy Code.
1. Statutory Interpretation.
a. The Plain Language of Section 502 Does Not Permit Equitable Disallowance.
First, in accordance with general rules of statutory interpretation, a plain reading of section 502 of the Bankruptcy Code does not permit equitable disallowance, as it is not among the enumerated exceptions to allowance of a claim. While not expressly ruling on the question of whether equitable disallowance exists as a remedy under the Code, the Supreme Court has held that if there is no basis to disallow a
This reading of section 502(b) — that if a claim is not subject to disallowance for any of the reasons specified therein, it must be allowed — is not only consistent with the statute but also with the over-arching principle that the Code should not be employed to void parties’ rights under applicable non-bankruptcy law in the absence of specific direction from Congress. The Supreme Court has described this reading of section 502(b)(1) as consistent with both the plain text and with “the settled principle that ‘[creditors’ entitlements in bankruptcy arise in the first instance from the underlying substantive law creating the debtor’s obligation, subject to any qualifying or contrary provisions of the Bankruptcy Code.’ ” Travelers, 549 U.S. at 450, 127 S.Ct. 1199 (citations omitted). Simply put, it must surely be the case that if a creditor engages in conduct egregious enough to justify equitable disallowance of its claim, there must be a basis under applicable law to disallow such claim pursuant to section 502(b)(1). As noted by the Fifth Circuit in Mobile Steel, the seminal case on equitable subordination:
Disallowance of claims on equitable grounds would add nothing to the protection against unfairness already afforded the bankrupt and its creditors. If the claimant’s inequitable conduct is directed against the creditors, they are fully protected by subordination. If the misconduct directed against the bankrupt is so extreme that disallowance might appear to be warranted, then surely the claim is either invalid, or the bankrupt possesses a clear defense against it. Thus, where the bankrupt is the victim it has an adequate remedy at law. It follows that disallowance of a wrongdoer’s claim on nonstatutory grounds would be an inappropriate form of equitable relief.
Benjamin v. Diamond (In re Mobile Steel Co.), 563 F.2d 692, 699 n. 10 (5th Cir. 1977) (internal citations omitted) (emphasis added).
b. The Court Cannot Equitably Disallow a Claim under Section 105(a).
Moreover, while bankruptcy courts indeed possess equitable powers under section 105(a) of the Bankruptcy Code, section 105 cannot be used to expand such powers beyond the contours of applicable law. Section 105(a), in pertinent part, permits a bankruptcy court, as a court of equity, to “issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title.” 11 U.S.C. § 105(a). It does not, however, give a bankruptcy court carte blanche to do whatever is deemed to be equitable, particularly by creating remedies that extend the substantive reach of the statute. As the Second Circuit has stated,
This Court has long recognized that Section 105(a) limits the bankruptcy court’s equitable powers, which must and can only be exercised within the confines of the Bankruptcy Code. It does not authorize the bankruptcy courts to create substantive rights that are otherwise unavailable under applicable law, or constitute a roving commission to do equity.
In re Smart World Techs., LLC, 423 F.3d 166, 184 (2d Cir. 2005).
Pending in the United States Supreme Court this Term is the case of Law v. Siegel, 435 Fed.Appx. 697 (9th Cir. 2011), petition for cert. granted, — U.S. -, 133 S.Ct. 2824, 186 L.Ed.2d 883 (2013), which raises the question of whether the bankruptcy court may surcharge property of a debtor that is otherwise exempt pursuant to the applicable provisions of section 522 of the Code using (a) its grant of equitable powers under section 105 of the Code or (b) its inherent power to sanction misconduct. In Law, the trustee sought to surcharge (ie. to treat as non-exempt) the debtor’s exempt property in order to compensate the estate for costs incurred as a result of the debtor’s bad faith litigation. Law poses a question that is structurally similar to the one before this Court: does the Code allow a bankruptcy court to exercise its equitable powers to contravene a specific contrary provision of the Code? The issue in this case is a fortiori to the issue in Law since here the Code is arguably silent on equitable disallowance, except to the extent of course that section 502(b) or section 510(c) can be read as a prohibition of equitable disallowance. Decades of cases limiting the interpretation of section 105 suggest that the bankruptcy court does not possess unlimited equitable powers untethered to specific Code provisions. If the Supreme Court were to hold to the contrary in Law, this
c. Section 510(c) Provides an Equitable Remedy of Subordination, Not Disallowance.
As a remedy for claims subject to equitable attack, section 510(c) of the Bankruptcy Code provides for the subordination of a claim to other claims. It does not, however, provide for the subordination of a claim to equity.
Based on the foregoing analysis, the Court concludes that it is not necessary or appropriate to delve into legislative history in order to hold that the Code does not permit equitable disallowance of claims. Moreover, where, as here, the legislative history raises more questions than it answers, and two distinguished jurists, Judge McKenna and Judge Gerber, have different commentary as to its significance, it seems prudent to avoid the temptation to look beyond the text itself.
Courts and scholars alike have struggled with the appropriateness of judges’ reliance on legislative history in interpreting a statute. Although statutes are all too often open to differing interpretations, many courts and commentators have argued against using legislative history as it does not present a full picture of congressional intent.
Legislative history is itself often murky, ambiguous, and contradictory ... investigation of legislative history has a tendency to become ... an exercise in ‘looking over a crowd and picking out your friends.’ [Jjudicial reliance on legislative materials like committee reports ... may give unrepresentative committee members — or, worse yet, unelected staffers and lobbyists — both the power and the incentive to attempt strategic manipulations of legislative history to secure results they were unable to achieve through the statutory text.
545 U.S. 546, 568, 125 S.Ct. 2611, 162 L.Ed.2d 502 (2005) (examining the legislative history of supplemental jurisdiction under 28 U.S.C. § 1367) (internal citations omitted).
Other jurists consider legislative history to be an effective and necessary tool in determining congressional intent in certain circumstances. For example, Justice Breyer has identified five primary situations in which judges should use legislative history: avoiding absurdity, illuminating drafting errors, determining specialized meanings, identifying a reasonable purpose, and choosing among reasonable alternatives of a politically controversial statute. See Kenneth R. Dortzbach, Legislative History: The Philosophies of Jus
The task of resolving the dispute over the meaning of [a Bankruptcy Code section] begins where all such inquiries must begin: with the language of the statute itself.... [This] is also where the inquiry should end, for where, as here, the statute’s language is plain, ... “the sole function of the courts is to enforce it according to its terms.”
U.S. v. Ron Pair Enters., Inc., 489 U.S. 235, 241, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989) (citations omitted). Here, it seems prudent to avoid entirely the thicket of legislative history, and begin and end the inquiry with the language of the Code.
Based on the foregoing, the Court holds that equitable disallowance is not permitted under the Bankruptcy Code. Accordingly, the Ergen Defendants’ Motion to Dismiss the Complaint is granted with respect to Count One, and Count One is dismissed with prejudice.
II. Harbinger Has Failed to State a Claim For Fraud or in Tort Against the Ergen Defendants.
Harbinger asserts five tort-based claims against the Ergen Defendants: Fraud (Count Two); Tortious Interference with Economic Advantage and Business Relationship (Counts Four and Five); Unfair Competition (Count Six); and Civil Conspiracy (Count Seven). Each claim fails as a matter of law, for the following reasons.
A. Fraud (Count Two).
To assert a claim for fraud under New York law, a plaintiff must allege: (a) a material false representation or an omission of a material fact;
1. Defendants’ Alleged Material False Representations and Fraudulent Omissions.
a. Material False Representations.
The fundamental premise of Harbinger’s fraud claim is that SPSO made false and misleading affirmative statements of material fact when it represented to UBS that it was an “Eligible Assignee” entitled to purchase Loan Debt, when in fact, it was not. Harbinger has not alleged that any Defendant other than SPSO made any affirmative statement about its status as an “Eligible Assignee.” However, Harbinger argues that “DISH and EchoStar, acting through Ergen, caused SPSO to make these misrepresentations” and thus are responsible for such alleged misrepresentations. Am. Compl. ¶ 98. By their Motions to Dismiss and accompanying memoranda of law, the Ergen/DISH Defendants argue that there is no cause of action for fraud as SPSO’s statement that it is an “Eligible Assignee” was true, or, at worst, not intentionally false.
Pursuant to the Credit Agreement, various competitors of the Debtors, including DISH and EchoStar and any of their “subsidiaries,” were defined to be “Disqualified Companies” and as such, were not eligible to purchase Loan Debt. Although “Subsidiary” is defined in the Credit Agreement, in relevant part, as “any other person that is otherwise Controlled
By the Amended Complaint, Harbinger largely ignores the Credit Agreement’s failure to use the defined term “Subsidiary” and submits that the word “subsidiary” as used in the definition of “Disqualified Company” should be given the same meaning as “Subsidiary.”
In response, the Ergen Defendants argue that, under the plain meaning of the Credit Agreement, SPSO is not a “subsidiary” of DISH/EchoStar, as it is owned and controlled by its sole member, SP Holdings, which, in turn, is owned and controlled by Mr. Ergen. Ergen Defs.’ Mem. 8-10. The Ergen Defendants urge that the term “subsidiary” as used in the definition of “Disqualified Company” should not be given the same meaning as the defined term “Subsidiary.” Id. 9 n.6. Contrary to Harbinger’s view, they say, the size of the letter does matter.
The Ergen Defendants make the following observations regarding the definition of “subsidiary.” First, the Ergen Defendants note that the Credit Agreement specifically defines the term “Affiliate” in relevant part as “with respect to a specified person, another person that ... is under common Control with the person specified. ...” Credit Agreement § 1.01. The term “Affiliate” was not included in the definition of “Disqualified Company.” If Harbinger is correct about the expansive definition of “subsidiary” there would seem to be no need for a separate term “Affiliate.”
While the Court makes no findings of fact on a motion to dismiss, it appears that the Ergen Defendants may have had an understanding of the word “subsidiary” as used in the Credit Agreement that is different from the meaning asserted by Harbinger. Nonetheless, even under Harbinger’s interpretation of the “Subsidiary” v. “subsidiary” issue, Harbinger has failed to state a claim for fraud that can survive the Ergen Defendants’ Motion to Dismiss.
Even if one were to assume that the term “subsidiary” as used in the definition of “Disqualified Company” has the meaning of the defined term “Subsidiary,”
Harbinger’s agency theory thus fails. It has not asserted alter-ego or veil-piercing claims against the Ergen/DISH Defendants, nor any other basis to support its pivotal allegation that DISH or EchoStar had “Control” or “control” over SPSO. Accordingly, Harbinger has failed to allege facts to support its assertions that (i) SPSO is a subsidiary of DISH or EchoStar and, thus, is a “Disqualified Company” under the Credit Agreement and (ii) SPSO’s representation that it was an “Eligible As-signee” was false. Harbinger has not alleged that any other Defendant besides SPSO made any material false statements. As such, Harbinger has not pled facts to support the allegation of a material false representation by the Ergen/DISH Defendants.
b. Material Omissions.
Harbinger asserts that, while the “Amended Complaint rests principally on affirmative misstatements”
Harbinger alleges that, at the time SPSO was purchasing Loan Debt, the Ergen/DISH Defendants had a duty to disclose the connection among SPSO, Mr. Ergen, and DISH/EchoStar because (i) such Defendants possessed “superior” knowledge regarding SPSO’s status as a “Disqualified Company”, (ii) Harbinger did not have such knowledge, and (iii) such Defendants knew that UBS and Harbinger were acting under the mistaken belief that SPSO was an “Eligible Assignee.” See Am. Compl. ¶ 99; Harbinger Opp. 46-47.
However, Harbinger and the Er-gen/DISH Defendants are not parties to a “business transaction” such that a duty to disclose would arise on the part of any of the Ergen/DISH Defendants.
2. Defendants’ Intent.
To plead fraud, a plaintiff must also make a showing of scienter, or defendant’s intent to defraud it. Nomura Sec., 280 F.Supp.2d at 207 (citing Brass v. American Film Technologies, Inc., 987 F.2d 142, 152 (2d Cir. 1993)). Although a plaintiff need not allege scienter in detail, it must allege facts that are at least suggestive of intent to defraud. This may be done either “by alleging a motive for the commission of a fraud or by identifying ‘circumstances indicating conscious behavior by the defendants.’ ” Id. (citing Brass, 987 F.2d at 152-53).
By the Amended Complaint, Harbinger alleges that Defendants made misrepresentations and omitted facts “intending to prevent Harbinger from taking steps to stop the Ergen Defendants from acquiring a significant holding in LightSquared.” Am. Compl. ¶ 100. Harbinger argues that the Ergen/DISH Defendants’ fraudulent intent is demonstrated by the “mantle of secrecy and deception in which Ergen cloaked his purchases [of Loan Debt],” including (i) the use of a special purpose entity (SPSO) to purchase the Loan Debt; (ii) the use of the Sound Point Capital Defendants to form SPSO to avoid a paper trail to Mr. Ergen or DISH/EchoStar; (iii) the failure to disclose the ownership structure of SPSO, and (iv) the entrance by SPSO into transactions to purchase securities of the Debtors that SPSO knew would not close. Am. Compl. ¶¶ 87, 98, 100; Harbinger Opp. 53-54.
The allegation that the Ergen Defendants used SPSO to purchase the Loan Debt and failed to disclose its the ownership structure — even if characterized as keeping Mr. Ergen’s ownership role a “secret” — fails to provide a compelling inference of fraudulent intent, given the typical market practice of investors purchasing distressed debt through special purpose vehicles. See Ergen Defs.’ Reply 6. No distressed debt investor wants to reveal its holdings and strategy a moment before it is absolutely necessary. With respect to the “hung trades” (as discussed in detail in Section II.B. below), the Court finds that Harbinger has not pled facts sufficient to demonstrate that the Ergen Defendants knowingly and intentionally, and for tactical purposes, interfered with the closing of trades or entered into trades that they knew SPSO was unable to execute; market factors may well have played a role.
Harbinger also argues that it was regularly provided the Lender List and had access to the Register,
Accordingly, Harbinger has failed to plead facts to support the allegations that the Ergen/DISH Defendants made any material misstatements or omissions with the intent to defraud Harbinger.
3. Harbinger’s Reliance.
Harbinger alleges that it reasonably relied upon the Ergen/DISH Defendants’ misrepresentations and omissions as it continued to invest labor, capital, and other resources into LightSquared and refrained from taking steps to curb the improper purchases of the Loan Debt,
As an initial matter, Harbinger did not have the right to rely on any representations or omissions made with respect to the Loan Debt, as it was not a party to the Credit Agreement or a counterparty to the trades of Loan Debt; that was the Debtors’ right, and responsibility. Further, the reasonableness of Harbinger’s alleged reliance is undermined by its own apparent lack of action. It is undisputed that SPSO began purchasing Loan Debt over a year prior to the filing of the Complaint.
For the foregoing reasons, Harbinger has failed to state a claim for fraud.
B. Tortious Interference with (i) Prospective Economic Advantage with LightSquared Creditors and (ii) the Jefferies Relationship (Counts Four and Five).
To state a claim for tortious interference with prospective business relations under New York law, a plaintiff must establish: (i) a prospective business relationship between plaintiff and a third party; (ii) defendant’s interference with that relationship; (iii) through wrongful means or with the purpose of harming the plaintiff; and (iv) injury to the relationship. See Faiveley Transp. USA, Inc. v. Wabtec Corp., 758 F.Supp.2d 211, 221-222 (S.D.N.Y. 2010). “ ‘[Wrongful means’ include physical violence, fraud or misrepresentation, civil suits and criminal prosecutions, and some degrees of economic pressure; they do not however, include persuasion alone although it is knowingly directed at interference with the [prospective] contract.” Carvel Corp. v. Noonan, 350 F.3d 6, 19 (2d Cir. 2003) (citing Guard-Life Corp. v. S. Parker Hardware Mfg. Corp., 50 N.Y.2d 183, 191, 428 N.Y.S.2d 628, 406 N.E.2d 445 (N.Y. 1980)).
1. Harbinger’s Allegations of Tortious Interference with Creditor Relationship.
In Count Four of the Amended Complaint, Harbinger alleges that the Er-gen/DISH Defendants tortiously interfered with Harbinger’s relationship with the Debtors’ creditors and with the universe of potential strategic and financial investors in the Debtors, through (i) SPSO’s fraudulent purchase of Loan Debt, (ii) SPSO’s purposeful holding open of trades, and (iii) LBAC’s tendering of a “low-ball” bid for spectrum assets. All of this, says Harbinger, interfered with its ability to negotiate a “full-pay plan” with the Debtors’ creditors. Am. Compl. ¶ 111.
With respect to Harbinger’s allegations that SPSO tortiously interfered with Harbinger’s relationship with the Debtors’ creditors by fraudulently purchasing Loan Debt, Harbinger maintains that SPSO fraudulently represented that it was an “Eligible Assignee” under the Credit Agreement, as discussed more fully in Section II above. Harbinger alleges that this material misrepresentation permitted SPSO to wrongfully gain control of the Ad Hoc Secured Group in order to premature
Regarding SPSO’s intentional holding open of trades, Harbinger maintains that the Ergen Defendants refused to close nearly $594,000,000 in Loan Debt trades (closer to $610,000,000 counting trades held by brokers on that date) — which constituted a “blocking position” of more than 33% of the total outstanding Loan Debt obligations.
Finally, Harbinger makes the conclusory allegation that the amount of LBAC’s bid for the assets of LightSquared LP caused potential investors to undervalue the Debtors’ spectrum assets, further deterring them from investing in the Debtors. Am. Compl. ¶ 10.
2. Harbinger’s Allegations of Tortious Interference with Jefferies Relationship.
With respect to tortious interference with its relationship with Jefferies (Count Five), Harbinger alleges that the Ergen Defendants caused SPSO to enter into two “back-to-back” transactions with Jefferies LLC (“Jefferies”)
3. Harbinger Has Not Pled Facts Sufficient to Demonstrate Tortious Interference with Either the Creditor Relationship or the Jefferies Relationship.
Harbinger has not pled any facts that establish that it had an independent and protectable relationship with the Debtors’ creditors or with Jefferies, or a pro-tectable interest in or right to negotiate with the Debtors’ creditors during the Debtors’ exclusive periods. Not for the first time in these Bankruptcy Cases, Harbinger conflates its interests with those of the Debtors. As stated by the Ergen Defendants, “that Harbinger thinks it is entitled to negotiate with the Ad Hoc Secured Group such that any action to ‘cut off its negotiations tortiously interferes with its economic advantage demonstrates that Harbinger’s real concern here is to retain control of LightSquared’s assets, not to maximize value for the Estate.” Ergen Defs.’ Mem. 21. If there is a viable cause of action based on these allegations, it belongs to the Debtors, not to Harbinger.
Further, Harbinger has failed to set forth facts sufficient to demonstrate that (i) the Ergen Defendants knowingly and intentionally kept the Loan Debt trades open indefinitely, or had the ability to do so, or (ii) the Ergen Defendants entered into the Jefferies bundled trades for tactical purposes. The Court agrees with the Ergen Defendants that there are a myriad of market factors that could have influenced the timing of the closing of the trades.
Moreover, to the extent the purported interference claims rest on Harbinger’s speculation that the Debtors might have fared better in various plan and exit financing negotiations but for SPSO’s alleged misconduct, Harbinger has not adequately pled that any such missed opportunity necessarily would have materialized but for the Ergen Defendants’ purported tortious interference.
Accordingly, the Court concludes that Harbinger has not alleged the elements of tortious interference with sufficient particularity to state a claim with respect to Harbinger’s relationship with (i) the Debtors’ creditors or (ii) Jefferies. The Motion of the Ergen Defendants to Dismiss the Amended Complaint with respect to Counts Four and Five is granted, and such Counts are dismissed without prejudice to the rights of the Debtors to assert such claims in an amended complaint filed in this Adversary Proceeding.
C. Unfair Competition (Count Six).
Under New York law, in order to succeed on a misappropriation and unfair competition claim, “plaintiffs must establish some wrongful appropriation or use of the plaintiffs’ ... property.” Dow Jones & Co. v. Int’l Sec. Exch., Inc., 451
Harbinger alleges that it had a protectable commercial advantage in exercising its control rights over the Debtors, without “infiltration by competitors.” Am. Compl. ¶ 122. Sounding the same theme it attempts to assert in connection with its tortious interference claims, Harbinger contends that “the Defendants” misappropriated Harbinger’s control of the Debtors by fraudulently acquiring Loan Debt through SPSO in order to obtain a blocking position in the Debtors’ capital structure. With this position, Harbinger posits, the Ergen/DISH Defendants could unfairly compete against Harbinger by (i) forcing Harbinger to sell the Debtors’ assets to them or (ii) preventing the confirmation of a plan that retains Harbinger’s equity in the Debtors. Id. Invoking the specter of DBSD,
Harbinger fails to plead allegations sufficient to support its theory that its “control rights” over the Debtors have been wrongfully “misappropriated.” As discussed in section II.B. above, Harbinger does not have a right or protectable interest that it can assert as a basis to bring these causes of action based in tort. Any
Further, Harbinger is hard-pressed to allege that its “control” over the Debtors has been misappropriated. Indeed, its allegations about “forced sales” and loss of control over the reorganization process are rather undercut by the terms of the proposed plan of reorganization it recently filed, which contemplates a plan in which Harbinger would maintain its equity stake in the reorganized Debtors.
The Court concludes that Harbinger has not pled allegations sufficient to state a claim for unfair competition. Accordingly, the Motion of the Ergen Defendants to Dismiss the Amended Complaint is granted with respect to Count Six, and Count Six is dismissed without prejudice to the Debtors to assert such a claim in an amended complaint filed in this Adversary Proceeding.
D. Civil Conspiracy (Count Seven).
Civil conspiracy claims cannot survive where, as is the case here, there is no underlying tort claim. “New York does not recognize an independent tort of conspiracy.” Kirch v. Liberty Media Corp., 449 F.3d 388, 401 (2d Cir. 2006). Accordingly, the Motion of the Ergen Defendants to Dismiss the Amended Complaint is granted with respect to Count Seven, and Count Seven is dismissed without prejudice to the rights of the Debtors to assert such a claim in an amended complaint filed in this Adversary Proceeding.
III. Harbinger Has Failed to State a Claim For Fraud or in Tort Against the DISH Defendants.
Harbinger asserts five claims against the DISH Defendants: Fraud (Count Two); Tortious Interference with Economic Advantage and Business Relationship (Counts Four and Five); Unfair Competition (Count Six); and Civil Conspiracy (Count Seven). Each claim fails as a matter of law because (a) the allegations of the Amended Complaint do not meet the heightened pleading standards required under Rule 9(b), reflecting, among other deficiencies, group pleading with respect to the several DISH Defendants and (b) for the reasons discussed in Section III above, Harbinger’s tort and fraud claims fail to survive dismissal pursuant to Rule 12(b)(6).
The Amended Complaint’s fraud claim against the DISH Defendants rests entirely on Harbinger’s assertion that the “Ergen Defendants” misstated or failed to state facts regarding “the true identity of the investors purchasing the Loan Debt” and SPSO’s eligibility to purchase the Loan Debt. Am. Compl. ¶¶ 98-99. Harbinger has not alleged that any of the DISH Defendants (or any Defendant, other than SPSO) made any affirmative statement about SPSO’s status as an “Eligible Assignee.” Instead, Harbinger argues that “DISH and EchoStar, acting through Mr. Ergen, caused SPSO to make these misrepresentations” and thus are responsible for such alleged misrepresentations. Id. ¶98. Harbinger argues — but has not pled — that the DISH Defendants are properly grouped together with the Ergen Defendants because “Ergen not only controls the [DISH Defendants], he also acts unilaterally on their behalf ... the acts of Ergen are imputed to these Defendants.” Harbinger Opp. 32-33.
Similarly, Harbinger has failed to plead any specific allegations with respect to the DISH Defendants in support of the tor-tious interference, unfair competition, and civil conspiracy claims, but instead lumps them together with its allegations against the “Ergen Defendants.” As discussed in detail in Section II.A. above, Harbinger’s imputation or agency theory, insofar as it has been pled, is insufficient as a matter of law. Accordingly, Harbinger has not pled a basis on which the DISH Defendants as a group or individually can be held responsible for the alleged acts of Mr. Ergen and/or SPSO.
As Harbinger has not set forth any specific allegations with respect to each of the DISH Defendants, the Amended Complaint does not meet the heightened pleading standards required by Rule 9(b). The Motion of the DISH Defendants to Dismiss Counts Two, Four, Five, Six, and Seven of the Amended Complaint is granted, and such counts are dismissed without prejudice to the Debtors’ rights to replead causes of action against the DISH Defendants in an amended complaint filed in this Adversary Proceeding.
IY. Harbinger Has Failed to State a Claim For Fraud or in Tort Against the Sound Point Capital Defendants.
Harbinger asserts three claims against the Sound Point Capital Defendants: (i) Aiding and Abetting Fraud (Count Three); (ii) Unfair Competition (Count Six); and
The only specific allegations Harbinger makes with respect to’the Sound Point Capital Defendants are that they: (i) signed and disseminated the Loan Debt Purchase Documentation as SPSO’s “investment advisor”; (ii) signed the certificates of formation as an “authorized person” for SPSO and SO Holdings; (iii) served as a broker to SPSO and arranged the trades whereby SPSO acquired Loan Debt; (iv) used their expertise in the telecommunications industry to identify Loan Debt holders to begin purchasing the Loan Debt in April 2012 (before SPSO was formed in May 2013); and (v) acted as the public face of SPSO to conceal SPSO’s affiliation with Mr. Ergen/DISH. See Am. Compl. ¶¶ 24, 61,105.
As discussed in detail in Section II above, Harbinger has not stated any viable claims in tort or for fraud in connection with SPSO’s acquisition of Loan Debt. As a consequence, the claims asserted against the Sound Point Capital Defendants in Counts Three, Six, and Seven must be dismissed because the commission of fraud by the Ergen and DISH Defendants is a predicate to such counts.
Moreover, the Court agrees with the Sound Point Capital Defendants that, even if the fraud claims had been adequately pled, Harbinger has failed to allege conduct by the Sound Point Capital Defendants that would constitute “substantial assistance” in the alleged fraud sufficient to support a claim of aiding and abetting fraud.
Accordingly, the Motion of the Sound Point Capital Defendants to Dismiss the Amended Complaint is granted with respect to Counts Three, Six, and Seven, and such Counts are dismissed without prejudice to the rights of the Debtors to include allegations against the Sound Point Capital Defendants in an amended complaint filed in this Adversary Proceeding.
V. Objection to the Claim of SPSO under Section 502 of the Bankruptcy Code (Count Eight).
Harbinger asserts that because SPSO was not an “Eligible Assignee” as defined
The allegations pled by Harbinger in support of disallowance of SPSO’s claim under section 502 of the Code are based on the same allegations proffered with respect to its fraud and tort-based causes of action. Such causes of action are dismissed, for the reasons set forth above. Accordingly, the Motion of the Ergen Defendants to Dismiss the Amended Complaint is granted with respect to Count Eight, and Count Eight is dismissed without prejudice to the rights of the Debtors, or any other party-in-interest, including Harbinger, to assert an objection to the allowance of SPSO’s claim pursuant to section 502(b) of the Code. Such an objection may be lodged as a claims objection pursuant to Bankruptcy Rule 3007; for the sake of efficiency, it may also be asserted in an amended complaint filed in this Adversary Proceeding.
CONCLUSION
Based on the foregoing, the Motions to Dismiss are granted as follows: (i) with respect to Count One, the Motion of the Ergen Defendants to Dismiss the Amended Complaint is granted, and Count One is dismissed with prejudice; (ii) with respect to Counts Two, Four, Five, Six, and Seven, the Motion of the Ergen Defendants to Dismiss the Amended Complaint is granted; (iii) with respect to Counts Two, Four, Five, Six, and Seven, the Motion of the DISH Defendants to Dismiss the Amended Complaint is granted; (iv) with respect to Counts Three, Six, and Seven, the Motion of the Sound Point Capital Defendants to Dismiss the Amended Complaint is granted; and (v) with respect to Count Eight, the Motion of the Ergen Defendants to Dismiss the Amended Complaint is granted, and Count Eight is dismissed without prejudice to the rights of any party-in-interest, including Harbinger, to seek disallowance of SPSO’s claim under section 502 of the Bankruptcy Code on grounds not inconsistent with this Decision. Because the Debtors’ Intervention was not filed as a separate complaint but rather as a statement linked to the Amended Complaint, the Debtors are granted leave to plead and file an amended complaint in this Adversary Proceeding against any or all- of the Defendants reflecting causes of action not inconsistent with this Decision. A separate Order reflecting such determinations has been entered on the Docket of this Adversary Proceeding [Dkt. No. 65]. IT IS SO ORDERED.
. Dkt. Nos. 29, 32, and 34, respectively.
. The Ergen Defendants, the DISH Defendants, and the Sound Point Capital Defendants will be referred to collectively herein as the "Defendants.”
.Dkt. No. 43.
. See Ex. B to Joinder of SP Special Opportunities, LLC to the Ad Hoc Secured Group of LightSquared LP Lenders' (I) Reply in Further Support of the Emergency Motion of the Ad Hoc Secured Group Of LightSquared LP Lenders to Enforce this Court's Order Pursuant to 11 U.S.C. § 1121(d) Further Extending LightSquared's Exclusive Periods to File a Plan of Reorganization and to Solicit Acceptances Thereof, and (II) Objection to LightSq-uared’s CrossMotion for Entry of Order Pursuant to 11 U.S.C. § 105(a) Relieving LightSquared of Certain Obligations Thereunder, and the Joinders Thereto, Case No. 12-12080 (Bankr.S.D.N.Y. July 9, 2013) [Dkt. No. 728] (the "LightSquared Trading Summary”). A total of $188,759,227.85 in trades of Loan Debt remains “unsettled.”
. See Revised Seventh Supplemental Verified Statement of White & Case LLP Pursuant to Bankruptcy Rule 2019, Case No. 12-12080 (Bankr.S.D.N.Y. July 26, 2013) [Dkt. No. 777],
. See LightSquared v. Deere, et al., Adv. Pro. No. 13-01670 (Bankr.S.D.N.Y. Nov. 1, 2013) ("LightSquared v. Deere"), Complaint [Dkt. No. 1] at ¶ 3.
. Harbinger made its first investment in LightSquared’s predecessor, SkyTerra, in 2004. See Harbinger v. Deere, et al., Case No. 13-cv-5543 (S.D.N.Y. Aug. 9, 2013) ("Harbinger v. Deere"), Complaint [Dkt. No. 1] at ¶ 123.
.See LightSquared v. Deere, Complaint V 3 ("To date, LightSquared has invested approximately $4 billion to develop its network”); Harbinger v. Deere, Complaint ¶ 152 ("Harbinger invested ... almost $1.9 billion”).
. See Revised Seventh Supplemental Verified Statement of White & Case LLP Pursuant to Bankruptcy Rule 2019, Case No. 12-12080 (Bankr.S.D.N.Y. July 26, 2013) [Dkt. No. 777],
. Under the Credit Agreement, the prior written consent of UBS, AG ("UBS”), the Administrative Agent, is required for any transfer of an interest in the Loan Debt. Credit Agreement § 10.04(b). To effectuate such a transfer, the parties must execute and deliver to UBS certain documentation (the "Purchase Documentation”), which requires the prospective purchaser to make various representations concerning, among other things, its status as an "Eligible Assignee.” Id. §§ 10.04(a) and (b)(ii)(C). Subject to acceptance of the transfer, the prospective purchaser or "Eligible Assignee” becomes a party to the Credit Agreement and shall "have the rights and obligations of a Lender under [the Credit Agreement]....” Id. § 10.04(b). As part of its acceptance and recordation of transfers, UBS records the names and addresses of the Lenders under the Credit Agreement (including Eligible Assignees that have become Lenders pursuant to accepted transfers of Loan Debt) and their interest in the Loan Debt in a register (the "Register”). Id. § 10.04(c).
. Am. Compl. ¶ 22.
. See Revised Seventh Supplemental Verified Statement of White & Case LLP Pursuant to Bankruptcy Rule 2019, Case No. 12-12080 (Bankr.S.D.N.Y. July 26, 2013) [Dkt. No. 777],
.See LightSquared Trading Summary.
. As stated in its notice of intervention, as of August 22, 2013, the Ad Hoc Secured Group was comprised of Capital Research and Management Company, Cyrus Capital Partners, L.P., Fir Tree Capital Opportunity Master Fund, L.P., Intermarket Corporation, SP Special Opportunities LLC, and UBS AG, Stamford Branch.
. By the Debtors’ Intervention and, as detailed in the Debtors' Opposition, the Debtors join this argument.
. See Oct. 29, 2013 Hearing Transcript [Dkt. No. 64] ("10/29/13 Hr'g Trans.”) at 114:3-7.
. Section 502(j) states that a "reconsidered claim may be allowed or disallowed according to the equities of the case,” but there is no concomitant subsection of section 502 (or any other section of the Bankruptcy Code) that permits the court to allow or disallow a claim in the first instance "according to the equities of the case.”
. 308 U.S. 295, 60 S.Ct. 238, 84 L.Ed. 281 (1939).
. Under the Code, there is a remedy at law (disallowance pursuant to section 502(b)(1)) that could be invoked in response to a fictitious claim by a fiduciary based on total disregard of the corporate entity. In other words, putting aside the res judicata issues involved in Pepper, Litton’s claim would be disallowed today pursuant to section 502(b)(1), without resort to equitable disallowance.
. Judge Gerber observed that "if this Court were writing on a clean slate, arguments based on the maxim 'expressio unius’ would have some force, especially in the context of section 502, where other exceptions to allow-ability were expressly set forth.” Adelphia I, 365 B.R. at 71.
. Id. (citing H.R.Rep. No. 595, 95th Cong., 1st Session 359 (1977) (reprinted in Volume C Collier on Bankruptcy App. Pt. 4-1495 (16th ed. 2013))). Judge Gerber also cited to case law reflecting courts’ reluctance to accept arguments interpreting the Code in a manner contrary to pre-Code practice.
.In Adelphia II, Judge McKenna conducted an extensive review of the legislative history of section 510, which was enacted as part of the Bankruptcy Reform Act of 1978. As Judge McKenna and Judge Gerber both observed, the House Judiciary Committee Report that accompanied H.R. 8200 states, in relevant part, "[Section 510] is intended to codify case law, such as Pepper v. Litton ... and is not intended to limit the court’s power in any way.... Nor does this subsection preclude a bankruptcy court from completely disallowing a claim in appropriate circumstances.” H.R.Rep. No. 595, 95th Congr., 1st Sess. 359 (1977). However, Section 510 of House Bill 8200, which was entitled "Subordination of claims,” did not include any provision for disallowance of claims and authorized subordination of an allowed claim or interest to another allowed claim or interest "on equitable grounds.” Id. In contrast to the House Bill, the Senate amendment, Senate Bill 2266, contained a subsection 510(c)(3) entitled "Subordination or disallowance of claims;” this Subsection 510(c)(3) of Senate Bill 2266 would have authorized the court to “disallow, in part or in whole, any claim or interest in accordance with the equities of the case.” The version of section 510 that was enacted, however, did not include any reference to "disallowance;” such language was deleted in its entirety while still at the Senate level. Judge McKenna noted that "[i]n the circumstances ... the Court cannot give any weight to the omission of Section 510(c)(3) of S.2266 from the Bankruptcy Code. Congress could have decided to do away with equitable disallowance, or it could have thought specific reference to it was superfluous.” Adelphia II, 390 B.R. at 75-76.
. Id. at 75.
. One must consider the massive scale of the Adelphia litigation when reviewing the analysis of equitable disallowance in the context of that case: equitable disallowance was claim number 33 out of over 50 causes of action, and the complaint named approximately 380 defendants.
. See also HSBC Bank USA, N.A. v. Calpine Corp., No. 07 Civ. 3088(GBD), 2010 WL 3835200 at *5, 2010 U.S. Dist. LEXIS 96792 at *18 (S.D.N.Y. Sept. 15, 2010) ("All claims are allowed unless specifically proscribed by one of the nine exceptions listed in § 502(b).”) (citing Travelers, 549 U.S. at 449, 127 S.Ct. 1199); SNTL Corp. v. Ctr. Ins. Co. (In re SNTL Corp.), 571 F.3d 826, 838-39 (9th Cir. 2009) (holding that a court "must find a basis in section 502 to disallow a claim, and absent such basis, [the court] must allow [the claim].”) (citations omitted); Heath v. Am. Express Travel Related Servs. Co. (In re Heath), 331 B.R. 424, 426 (9th Cir. BAP 2005) ("Section 502(b) sets forth the exclusive grounds for disallowance of claims....”); Dove-Nation v. eCast Settlement Corp. (In re Dove-Nation), 318 B.R. 147, 152 (8th Cir. BAP 2004) (rejecting the argument that claims may be objected to as tardy as such a basis is not enumerated in Section 502(b) of the Bankruptcy Code: "The Bankruptcy Code could not be more clear: a claim, proof of which is filed, shall be allowed unless it falls within one of the exceptions set forth in Section 502(b).”); In re Moreno, 341 B.R. 813, 817 (Bankr.S.D.Fla. 2006) ("§ 502(b) sets out the exclusive exceptions for disallowance of a claim.”).
. See also 80 Nassau Assocs. v. Crossland Fed. Sav. Bank (In re 80 Nassau Assocs.), 169
. See, e.g., Shearer v. Tepsic (In re Emergency Monitoring Techs., Inc.), 366 B.R. 476, 504 (Bankr.W.D.Pa. 2007) (Section 510(c) only "authorizes the subordination of claims to other claims or interests to other interests but its language does not extend to treatment of interests vis-a-vis claims'') (citations omitted) (emphasis in original); Town & Country Corp. v. Hare & Co. (In re Town & Country Corp.), 2000 WL 35915909 at *5-6, 2000 Bankr.LEX-IS 1755 at *16-17 (1st Cir. BAP 2000) (Section 510(c) is designed to "deal with equitable subordination of claims to other claims or interest to other interests.... The Panel will not import some other interpretation to § 510(c) when its language is clear and unambiguous on its face.”); 80 Nassau Assocs. v. Crossland Fed. Sav. Bank (In re 80 Nassau Assocs.), 169 B.R. 832, 836-837 (Bankr.S.D.N.Y. 1994) (Section 510(c) “empowers the Bankruptcy Court, under ‘principles of equitable subordination,' to subordinate, for purposes of distribution, claims to other claims, and interests to other interests....”); 4 Collier on Bankruptcy V 510.05 at 510-17 (16th ed. 2013) ("Under subsection (c)(1), claims may be subordinated to claims, and interests may be subordinated to interests, but claims may not be subordinated to interests.”).
. See, e.g., Murgillo v. California State Bd. of Equalization (In re Murgillo), 176 B.R. 524, 532-33 (9th Cir. BAP 1994) (rejecting debt- or’s attempt to equitably disallow a claim and finding that should the bankruptcy court “make an equitable exception to the general rule of § 502(b) [it] would serve to bypass the specific code provision for equitable treatment of an allowed claim — § 510(c).... [T]he proper exercise of the bankruptcy court’s equitable powers under § 502 is through investigation into the existence, validity and enforceability of claims leading to their allowance or disallowance; and the proper exercise of equitable powers regarding allowed claims is through the equitable subordination provisions of § 510(c).”) (citations omitted).
. See, e.g., Keppel v. Tiffin Sav. Bank, 197 U.S. 356, 363, 25 S.Ct. 443, 49 L.Ed. 790 (U.S. 1905) ("[C]ourts of bankruptcy are guided by equitable considerations ... The fallacy lies in assuming that courts have power to inflict penalties, although the law has not imposed them”).
. At least one commentator has observed that the Supreme Court's ruling in Pepper v. Litton should not be relied on by courts as a basis for the equitable disallowance of claims. Hon. Alan M. Ahart, Why the Equitable Disal-lowance of Claims in Bankruptcy Must be Disallowed, 20 Am. Bankr Inst. L. Rev. 445, 460 (2012) ("[B]ecause the [Court's] reasoning was flawed and because Pepper v. Litton relied
. See, e.g., Hon. Patricia M. Wald (Ret.), Some Observations on the Use of Legislative History in the 1981 Supreme Court Term, 68 Iowa L. Rev. 195, 200 (1983) ("Much of the pertinent legislative discussion is unrecorded or inadequately recorded....”); Jonathan T. Molot, Exchange: The Rise and Fall of Textu-alism, 106 Colum. L. Rev. 1, 28-29 (2006) (“[W]hen judges rely on legislative history they risk elevating the views of those select few. Rather than enforcing the language enacted by both Houses of Congress and signed by the President, purposivist judges enforce the policy preferences of a subset of legislators, thereby violating the Constitution’s carefully crafted lawmaking procedures.”) (internal citations omitted).
. To bring a claim for fraudulent omission of a material fact, a plaintiff must also allege that the defendant had a duty to disclose the information. Gomez-Jimenez v. New York Law School, 103 A.D.3d 13, 956 N.Y.S.2d 54, 59 (2012); Bangue Arabe et Internationale D'Invesissement v. Md. Nat’l Bank, 57 F.3d 146, 153 (2d Cir. 1995).
. A fraud claim must be dismissed if a complaint fails to allege that the defendant made a false statement. See, e.g., Mazzola v. Roomster Corp., 849 F.Supp.2d 395, 403-04 (S.D.N.Y. 2012) (dismissing fraud claim where plaintiff failed to plead an affirmative misrepresentation); Gomez-Jimenez v. New York Law School, 956 N.Y.S.2d at 59-60 (dismissing fraud claim where alleged misrepresentation was not false).
. "Control” under the Credit Agreement is defined, in part, as "the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a person, whether through ownership of voting securities, by contract or otherwise....” Credit Agreement § 1.01.
. A "Disqualified Company” is defined in the Credit Agreement in relevant part as "any operating company which is a direct competitor of the Borrower,” as well as "any known subsidiary thereof.” Credit Agreement § 1.01.
. Harbinger argues that, because the Credit Agreement does not require that terms be capitalized to retain their defined meaning, the fact that "subsidiary” is not capitalized in the definition of “Disqualified Company” is of no consequence. The Court does not find this argument persuasive. Further, Harbinger and the Debtors argue that even if the dictionary definition of "subsidiary” is to be applied (given the lack of capitalization), Black’s Law Dictionary defines "subsidiary” as "subordinate; under another’s control” and argue
. Ergen Defs.’ Mem. 9-10.
. Ergen Defs.' Reply 2 n.2.
. Ergen Defs.' Mem. 9 n.6.
. Ergen Defs.’ Reply 2.
. Harbinger Opp. 37-41.
. Harbinger Opp. 34.
. Harbinger Opp. 45.
. See also Strasser v. Prudential Sec., Inc., 218 A.D.2d 526, 630 N.Y.S.2d 80, 82 (1995) (duty to disclose exists "when nondisclosure would le[a]d the person to ... forego action that might otherwise have been taken for the protection of that person”) (internal citations omitted).
. Harbinger further alleges that the Er-gen/DISH Defendants were under a duty to disclose SPSO's relationship with Ergen and DISH/EchoStar because their "affirmative misstatements about SPSO being qualified to purchase the Loan Debt [were] misleading.” Am. Compl. ¶ 99. Under New York law, there is also a duty to disclose "where the party has made a partial or ambiguous statement, on the theory that once a party has undertaken to mention a relevant fact to the other party it cannot give only half of the truth.” Tomoka Re Holdings, Inc. v. Loughlin, 2004 U.S. Dist. LEXIS 8931, at *12 (S.D.N.Y. May 19, 2004) (citations omitted); see also Sheridan Drive-In, Inc. v. State of New York, 16 A.D.2d 400, 228 N.Y.S.2d 576, 585 (1962) ("If an ambiguous term is used in making a representation in a business transaction ... there is liability for fraud if the erroneous impression created by the ambiguous representation is not corrected.”). Harbinger argues that if the Ergen/DISH Defendants had any doubt as to whether SPSO's representation was accurate, it was such Defendants’ duty to share the whole truth, and not conceal it to their own commercial advantage. Harbinger Opp. 45-46. As discussed above, Harbinger has failed adequately to plead that affirmative misstatements were made by any of the Ergen/DISH Defendants regarding SPSO's representation that it was an "Eligible Assignee,” let alone any partial or ambiguous statements that needed to be corrected. Accordingly, Harbinger cannot rely on the duty to disclose that arises to correct a prior misstatement.
.Nomura Sec., 280 F.Supp.2d at 205. In each of the cases cited by Harbinger in support of the duty to disclose, the plaintiffs and defendants were counterparties to a business transaction or agreement. See Tomoka Re Holdings, 2004 U.S. Dist. LEXIS 8931, at *12-13; Nomura Sec., 280 F.Supp.2d at 205; Sheridan Drive-In, 228 N.Y.S.2d at 585. While Courts have held that the duty to disclose “is not limited to parties in privity of contract,” Strasser, 630 N.Y.S.2d at 82, a duty is only owed to a party that could reasonably expect such a disclosure, based on fiduciary duty or otherwise. See Abu Dhab., 651 F.Supp. at 172 n. 96; Nomura Sec., 280 F.Supp.2d at 205.
. See Credit Agreement § 10.04(b).
. In pleading scienter based on allegations of motive or improper intent, plaintiff must plead facts that give rise to an inference that is "more than merely plausible or reasonable — it must be cogent and at least as compelling as any opposing inference of nonflrau-dulent [sic] intent.” Abu Dhabi Commercial Bank v. Morgan Stanley & Co., 651 F.Supp.2d
.The Register, as maintained by UBS as Administrative Agent under the Credit Agreement, contains the names and addresses of the Lenders (including Eligible Assignees that have become Lenders pursuant to accepted transfers of Loan Debt) and their interest in Loan Debt. Harbinger alleges (i) that UBS also created a separate list of the names and addresses of the Lenders who were Eligible Assignees, along with their interest in Loan Debt (the “Lender List”), and (ii) that UBS provided the Lender List to LightSquared from time to time; in turn, LightSquared shared the Lender List with Harbinger. Am. Compl. ¶ 55.
. Am. Compl. ¶ 100.
. See LightSquared Trading Summary.
. See, generally, docket of Case No. 12-12080(SCC).
. Based on the foregoing, it is not necessary to discuss the final element of the legal test for fraud — causation of injury to the plaintiff. Further, as discussed in Section II.C. below, Harbinger’s loss of its “unique controlling interest in the Debtors” is not an injury or basis on which relief can be sought.
. Harbinger Opp. 68; Am. Compl. ¶ 64. The LightSquared Trading Summary includes a schedule reflecting trade date, closing date, and amount of Loan Debt purchased. See LightSquared Trading Summary.
. On June 7, 2013, this Court entered an order authorizing the Debtors to retain Jeffer-ies to seek exit financing for the Debtors. Harbinger voluntary undertook to pay $80 million in fees incident to the retention. See Order, Pursuant to 11 U.S.C. §§ 105(a) and 363, Authorizing LightSquared To (A) Enter Into and Perform Under Engagement Letter Related to Exit Financing Arrangements, (B) Pay Fees and Expenses in Connection Therewith, and (C) Provide Related Indemnities, Case No. 12-12080 (Bankr.S.D.N.Y. June 7, 2013) [Dkt. No. 667]. Included in the Debtors’ motion seeking entry of this order was a statement that, prior to the date of the motion, Jefferies had served and continues to serve as the broker for trades of and/or may hold or own, securities of the Debtors. See Dkt. No. 645 at 4 n.6. In addition, the Debtors stated that, while Jefferies may wear two hats in these proceedings, the professionals at Jef-feries performing exit financing services will not share confidential or otherwise non-public information with the branch of Jefferies that trades or owns securities of the Debtors. Id.
.Harbinger's allegation that SPSO was unable to purchase preferred interests of LightSquared LP is based on Section 2.1 of the LightSquared Inc. Stockholders’ Agreement, which prohibits, until a date certain, the transfer of such preferred interests to EchoStar or its “respective Affiliates or funds managed by such entities or their Affiliates.” Am. Compl. ¶71 (citing § 2.1 of the Stockholders’ Agreement).
. As discussed above, "A complaint will survive ... only if a reasonable person would deem the inference of scienter cogent and at least as compelling as any opposing inference one could draw from the facts alleged.” Tellabs, 551 U.S. at 323-24, 127 S.Ct. 2499.
. See Telecom Int’l Am., Ltd. v. AT & T Corp., 280 F.3d 175, 198 (2d Cir. 2001) (affirming grant of summary judgment to defendant on plaintiff's unfair competition claim where plaintiff failed to show "some appropriation of an idea or knowledge in which [plaintiff] had a property interest or a contractual arrangement creating such an interest”); Metropolitan Opera Ass'n v. Wagner-Nichols Recorder Corp., 199 Misc. 786, 101 N.Y.S.2d 483, 493 (N.Y.Sup.Ct. 1950) ("Clearly, some property rights in the plaintiffs and interference with and misappropriation of them by defendants are necessary to a cause of action.”), aff'd, 279 A.D. 632, 107 N.Y.S.2d 795 (1951).
. Dish Network Corp. v. DBSD N. Am., Inc. (In re DBSD N. Am., Inc.), 634 F.3d 79 (2d Cir. 2010) (“DBSD ”).
. In DBSD, the Second Circuit upheld the bankruptcy court’s designation of DISH’s votes to reject a plan of reorganization. The court held that because DISH purchased a blocking position after a plan had been proposed, with the intention "to use status as a creditor to provide advantages over proposing a plan as an outsider, or making a traditional bid for the company or its assets” it voted with "ulterior motives” and not in good faith. DBSD, 634 F.3d at 104 (quoting In re DBSD, 421 B.R. 133, 139-40 (Bankr.S.D.N.Y. 2009)). The Second Circuit also specifically limited its ruling to circumstances in which parties purchase claims for the strategic purpose of blocking a plan: "[the] ruling today should deter only attempts to ‘obtain a blocking position’ and thereby 'control the bankruptcy process for [a] potentially strategic asset’ ... our opinion imposes no categorical prohibition on purchasing claims with acquisitive or other strategic intentions.” DBSD, 634 F.3d at 105 (internal citations omitted).
. See Joint Plan of Reorganization Pursuant to Chapter 11 of the Bankruptcy Code Proposed by Harbinger, Case No. 12-12080 (Bankr.S.D.N.Y.DATE) [Dkt. No. 821],
. See, e.g., Berman v. Morgan Keegan & Co., Inc., 455 Fed.Appx. 92, 96 (2d Cir. 2012) (Allegations that a broker assisted the client’s fraud by executing securities transactions on the client’s behalf and at the client's direction are "insufficient to constitute ‘substantial assistance.’ ”); CRT Invs., Ltd. v. BDO Seidman, LLP, 85 A.D.3d 470, 925 N.Y.S.2d 439, 441 (2011) (" '[Substantial assistance,’ a necessary element of aiding and abetting fraud, means more than just performing routine business services for the alleged fraudster.”).
. See Kolbeck v. LIT Am., 923 F.Supp. 557, 571-572 (S.D.N.Y. 1996) ("Securities brokers do not owe a general duty of care or disclosure to the public simply because they are market professionals.”).
Reference
- Full Case Name
- IN RE LIGHTSQUARED INC., Debtors. Harbinger Capital Partners LLC, HGW US Holding Company LP, Blue Line DZM Corp., and Harbinger Capital Partners SP, Inc. v. Charles W. Ergen, Echostar Corporation, Dish Network Corporation, L-Band Acquisition LLC, SP Special Opportunities LLC, SP Special Opportunities Holdings LLC, Sound Point Capital Management LP, and Stephen Ketchum, The Ad Hoc Secured Group of LightSquared LP Lenders, LightSquared Inc., Mast Capital Management, LLC, and U.S. Bank National Association, Intervenors
- Cited By
- 13 cases
- Status
- Published