Any other day, a plaintiff would be thrilled that the Texas Supreme Court upheld a $40 million jury verdict in their favor.
But Highland Capital is no ordinary plaintiff and its fraud case against Credit Suisse over a 2007 Las Vegas residential real estate project has been far from run-of-the-mill.
In a unanimous opinion issued Friday, the state’s highest court upheld a 2014 Dallas County jury verdict that Credit Suisse had fraudulently induced Claymore Holdings, a subsidiary of Highland Capital, into making a $250 million investment in the 3,592-acre resort community called Lake Las Vegas, which is 30 miles from The Strip.
The jury ordered the Zurich-based bank to pay $40 million in damages.
But the justices reversed the trial court’s equitable relief award of $211 million in rescission damages from breach-of-contract charges “for essentially the same injury to Claymore that the jury had already valued at $40 million.”
The decadelong litigation started in state District Judge Dale Tillery’s courtroom. Highland Capital claimed Credit Suisse fraudulently inflated the appraisal to induce the investment firm and others to put hundreds of millions of dollars into the real estate development. The parties agreed that New York law applied in the case.
In a bifurcated trial, Highland Capital’s lawyers presented evidence that a Credit Suisse executive nicknamed “Dr. Frankenstein” had convinced an appraiser to “dramatically increase” the value of the project from $511 million to as much as $891 million in May 2007.
Based on the appraisal, Credit Suisse proposed a $540 million credit agreement to the borrowers developing the real estate project. Claymore, which invested in distressed, high-risk real estate ventures, agreed to put in $250 million.
Within months of signing the agreement ion June 2007, the Las Vegas real estate market went bust. Thirteen months later, the joint venture filed for bankruptcy.
Lawyers for Credit Suisse argued that it was not responsible if the appraisal was believed to be done in good faith and they attempted to show in court that correct disclosures were made to investors. The dramatic drop in the projects value had more to do with the collapse of the real estate market during the financial recession.
After the jury awarded the $40 million, Judge Tillery then conducted a second, bench phase of the trial that focused on breach of contract and other misconduct allegations. The judge ruled that rescissory damages of $211 million were appropriate because there was no reasonable method to gauge Highland Capital’s actual monetary loss.
In 2018, the Dallas Court of Appeals, in an opinion authored by Justice Elizabeth Lang-Miers, upheld the trial court’s decision.
On Friday, the Texas Supreme Court ruled that the lower courts “inequitably treated Claymore as though it received nothing at all in the transaction” and wrongly “charged all Claymore’s investment losses to Credit Suisse.”
“Claymore unquestionably got something of substantial value in exchange for the money it loaned,” Justice Jimmy Blacklock wrote in a 35-page opinion. “Because of the faulty appraisal, what Claymore got for its money was not as valuable as what it thought it was getting. But it got something of value nonetheless.”
“The borrower’s default and the collapse of the real estate market later reduced the value of what Claymore held,” the court ruled. “But those events were driven by forces beyond either party’s control, not by the faulty appraisal.”
Justice Blacklock said New York law provided “no valid basis” for the $211 million equitable monetary relief in light of the jury’s $40 million award.
Baker Botts partners Evan Young and Tom Phillips represented Credit Suisse. Austin lawyer William T. Reid IV of Reid Collins & Tsai represented Highland Capital.