The case of the day is Redeemer Committee of Highland Credit Strategies Funds v. Highland Capital Management, LP (S.D.N.Y. 2016). Highland Capital Management was the manager of Highland Credit Strategies Master Fund, LP, a Bermuda mutual fund company. The Master Fund invested money received from two feeder funds, Highland Credit Strategies Fund, LP and Highland Credit Strategies Fund, Ltd. When the feeder funds decided to liquidate in 2008, Highland Capital Management and the investors agreed on a plan for distributing the assets of the Master Fund, to be overseen by a Redeemer Committee. They agreed to arbitration of any disputes that arose, to be held in New York and administered by the AAA. According to Highland Capital Management, the plan of distribution was “implemented in Bermuda in relation to Highland Credit Strategies Fund, Ltd. (a Bermuda company) by way of a scheme of arrangement under the Bermuda Companies Act 1981.” The plan of distribution had confidentiality provisions that were incorporated into the scheme of arrangement. The scheme of arrangement was approved by the Bermuda court and could not be changed without court approval.
A dispute arose, and the parties arbitrated in New York. The arbitration resulted in an award, which the Redeemer Committee moved to confirm. As required by the confidentiality provisions of the plan, the Redeemer Committee sought and received leave to file its petition for confirmation under seal. For its part, Highland Capital Management moved to vacate the award. Later, the parties agreed that the petition itself need not be sealed, but Highland Capital Management insisted that the award itself, and other materials, should remain under seal. The main argument was that Bermuda law applied and required sealing, and that therefore considerations of comity overrode the usual policy favoring public access to judicial records and proceedings.
Continue reading Case of the Day: Redeemer Committee v. Highland Capital Management
The case of the day is LV Highland Credit Feeder Fund LLC v. Highland Strategies Fund, LP (Tex. Ct. App. 2015). The plaintiffs were investors in either Highland Credit Strategies Fund, LP, a Delaware limited partnership, or Highland Credit Strategies Fund, Ltd., a Bermuda mutual fund company. The defendants were the two funds as well as Highland Capital Management, LP, which managed the funds, and some of HCM’s executives.
Both the Delaware fund and the Bermuda fund invested in Highland Credit Strategies Maser Fund, LP, a Bermuda limited partnership. The claim was that in 2008, during the financial crisis, the funds began experiencing losses. The plaintiff investors were worried that other investors might begin to redeem their investments, and that due to the long waiting period before investors could receive their money after beginning the redemption process, the funds might not be able to satisfy the plaintiffs’ redemption requests if they waited too long. But, the plaintiffs claimed, the funds fraudulently misrepresented the number of redemption requests they had received, thus inducing the plaintiffs to delay. In October 2008, Highland Capital Management informed all investors that the funds were to be wound down. It proposed a plan of distribution that treated investors who had submitted redemption requests before a certain date more favorably than those who had not. The plaintiffs were in the unlucky group, and so they sued, claiming fraud, breach of fiduciary duty, and breach of Massachusetts’s statute on deceptive trade practices and its blue sky laws (some of the individual investor plaintiffs were from Massachusetts). The funds asserted that the claims of those investors who had invested in the Bermuda fund were barred by a release. The funds offered affidavits tending to prove that the Bermuda fund applied to the Bermuda courts for a “scheme of arrangement to liquidate the fund and pay off its creditors” in accordance with HCM’s plan of distribution. The creditors voted in favor of the scheme, and the Supreme Court of Bermuda approved the scheme. The scheme contained a release of HCM and both funds. The funds also submitted the Bermuda court order to the Texas court, and they moved for summary judgment. The court granted the motion, and the investors appealed.
Continue reading Case of the Day: LV Highland Credit Feeder Fund v. Highland Credit Strategies Fund
I’m putting together a Hague Service Convention application for Bermuda today for a pending case in the D. Mass. And it was 5F / -15C while I waited for my train in Boston this morning. Which leads to my modest proposal for a new requirement under the Convention: when the temperature in the sending state is at least 30C lower than in the destination state, the plaintiff’s lawyer should be required to deliver the application to the central authority in person. Eminently reasonable, right?