Charlie Ergen, the chairman of Dish Network Inc. and its controlling shareholder, was recently sued by a fellow shareholder. The basis of the lawsuit is breach of fiduciary duty. Ergen caught the eye of his fellow Dish Network shareholders when he started to invest in a potential competitor. It turns out that he had previously invested and acquired a billion dollars of debt in LightSquared Inc. Subsequently, LightSquared filed bankruptcy and Ergen attempted to bid for its assets in bankruptcy court.

Because LightSquared is in a similar business (broadband connectivity, including satellites) as Dish Network, the shareholders felt that Ergen had been disloyal to Dish Network by advancing his personal interest over the company’s. The court held that the shareholders theory was too tenuous to prevent Ergen from bidding.
The lesson behind this is to be very careful to define the roles and responsibilities of shareholders, particularly controlling shareholders. For more, click here.