Credit Suisse Ordered to Pay Highland Capital $287.5 Million 

Credit Suisse Group AG was ordered by a Texas judge to pay Highland Capital Management LP $287.5 million for losses on a $540 million refinancing of a shaky real estate development.

Highland had sought $377 million in damages in one of two disputes with the bank over failed luxury developments in the American West.

Highland’s Claymore Holdings LLC accused Credit Suisse of providing an inflated appraisal for a loan for Lake Las Vegas, a 3,592-acre residential and resort community in Henderson, Nevada. The resort, 17 miles (27 kilometers) east of the Las Vegas Strip, went bankrupt in 2008.

Echoing arguments in other fights that arose after the 2008 financial crisis, Credit Suisse countered that Highland’s losses on $250 million in debt it acquired resulted from the real estate crash and not its appraisal.

Friday’s ruling by state court Judge Dale Tillery in Dallas follows a jury’s December verdict awarding Highland $40 million on its claim that Credit Suisse used a faulty appraisal to dupe it into investing. Tillery began a nonjury trial May 27 on Highland’s claims that Credit Suisse broke a contract by providing a flawed appraisal.

Tillery didn’t issue an opinion explaining in any detail why he ruled in favor of Highland. Tillery said he took earlier settlements into account, deducting them before reaching the $211.9 million damages award, plus interest. The $40 million jury award won’t be added to Friday’s judgment.

‘Pursue Options’

“We respectfully disagree with the court’s decision and intend to pursue all available options to vindicate ourselves in this matter,” Nicole Sharp, a spokeswoman for Zurich-based Credit Suisse, said in an e-mailed statement.

The lawsuit is one of multiple legal disputes between Highland and Credit Suisse. Two other Highland entities sued the bank in New York state court claiming it marketed loans for the luxury Yellowstone Club resort in Montana and other developments based on fraudulent appraisals. A New York judge dismissed much of that lawsuit.

Those units, Highland’s Allenby LLC and Haygood LLC, filed a separate action in state court in Dallas in May alleging breach of contract. Drew Benson, a Credit Suisse spokesman, said then that the new suit was a “frivolous attempt to revive failed arguments that were already rejected by a New York court.” That case remains pending in Dallas.

In the Lake Las Vegas case, Highland, with $21.7 billion of assets under management, accused the bank of violating a contract by using a flawed appraisal that inflated the value of collateral backing loans for a refinancing in 2007.

Recovered Losses

There was no breach because Highland wasn’t part of the original contract, Credit Suisse’s lawyers told Tillery. Highland was trying to rescue itself from a failed investment strategy, they said.

Highland recovered at least $52 million of its losses through settlements with real estate companies and the developer, Credit Suisse lawyer Jeff Tillotson told the court. “We’re the last car on this train.”

“We are pleased that the Texas state court ruled on our favor on all claims,” Tom Becker, a spokesman for Dallas-based Highland Capital spokesman said in an e-mailed statement. Becker said the judge found that Credit Suisse “breached the terms of a contract with certain Highland funds when it committed a massive and systematic fraud.”

The ruling might be vulnerable to being overturned on appeal, said Erik Gordon, a University of Michigan law professor. The judgment could fall on Highland’s reliance on the appraisal as a sophisticated investor, he said.

“It seems questionable that it’s reasonable for an investor as sophisticated as Highland to rely on an appraisal when it participated in a $540 million refinancing and not do an analysis of its own,” Gordon said.

“It wasn’t a case of 20-year-olds buying their first house.”

The case is Claymore Holdings LLC v. Credit Suisse AG, 13-07858, District Court, Dallas County, Texas.

Source: Bloomberg – Credit Suisse Ordered to Pay Highland Capital $287.5 Million

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