© 2014 The Texas Lawbook.
By Natalie Posgate – (December 22) – A Dallas jury found banking giant Credit Suisse liable for defrauding an affiliate of Highland Capital Management into backing a $540 million loan in a real estate deal that collapsed in the midst of the financial crisis.
After two days of deliberation, 10 women and two men found in their 11-1 verdict that Credit Suisse duped Dallas-based Highland into providing the loan by depicting an inflated valuation of the Lake Las Vegas resort, and awarded Highland $40 million in damages.
Though an important win for Highland, Friday’s outcome is only a slice of the overall litigation pending in State District Judge Dale Tillery’s court, lawyers for both sides say. Highland has asked Judge Tillery to award an additional $300 million and find for claims beyond fraud.
“It’s not often that an international bank is liable for fraud; it’s a pretty rare occasion and to have proven that they committed fraud is a great feat,” said William Reid, IV, the lead attorney for Highland. “It’s a nice battle to win, but the war is still being waged.”
Credit Suisse is confident that it will not have to pay a dime – especially since jurors found the banking giant only 65 percent liable for the damages. Appraisers and the resort were blamed for the other 35 percent.
“We are highly confident that, after applying proportionate responsibility and applicable credits, today’s jury verdict will result in Credit Suisse paying no damages in this case,” Credit Suisse spokesman Drew Benson said in a statement.
David Lender of Weil, Gotshal & Manges, who led the defense for Credit Suisse, was traveling after the verdict and not available for comment.
Jeff Tillotson, who also defended Credit Suisse, told Bloomberg in court Friday that settlements by appraisers and developers, when credited, “effectively render this a zero judgment.”
The legal battle in Judge Tillery’s court is not the only one Highland and Credit Suisse are fighting. In August, a New York court ordered Highland to pay Credit Suisse $77 million for failing to close two trades in 2008. In October, another New York court granted summary judgment for Credit Suisse, dismissing similar claims Highland had made against the bank in Texas.
Reid said Highland was not able to prevail in New York court because he could not get crucial discovery grants, unlike in Dallas, where he was able to show the jury key Credit Suisse emails that he believed were pivotal to proving his case.
“We were able to get all their emails and show what really happened, that they misbehaved,” said Reid, a founding partner of Reid Collins & Tsai in Austin.
The most important email, Reid said, was one that a Credit Suisse banker wrote to the leveraged loan banking team that said the bank was “going to maintain ignorance” of an error made by the appraiser that valued Lake Las Vegas higher than what it was worth.
Highland brought the lawsuit in 2013 and sought up to $250 million in damages for the uncommon appraisal method Credit Suisse used called the “total net value.”
Highland claimed it lost millions in investments in various loans Credit Suisse arranged for a handful of high-end resort and ski communities, like Nevada’s Lake Las Vegas and Montana’s Yellowstone Club, after those properties collapsed into bankruptcy and were forced to restructure.
Credit Suisse was driven to strike those deals with Highland and other lenders because of the lucrative fees Credit Suisse earned for underwriting the transactions, Highland alleged.
Credit Suisse said at trial that Highland was no victim of fraud, arguing that the Lake Las Vegas investment went bad because of the financial crisis and Highland aggressively increased its position in the deal before an appraisal on the property was ever done.
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