The Dallas Court of Appeals Tuesday upheld a lower court ruling for Dallas investment firm Highland Capital Management to recover nearly $288 million from Swiss bank Credit Suisse for a real estate deal gone wrong in the run up to the 2008 financial crisis.
Credit Suisse indicated Wednesday that it may appeal to the Texas Supreme Court, but the ruling marks a win for Highland in a case that has rolled through the Dallas court system for years. The decision comes amid still-swirling questions over whether banks were responsible for inflated real estate appraisals ahead of the crash.
Claymore Holdings, a subsidiary of Highland Capital, invested $250 million with Credit Suisse to refinance a real estate development outside of Las Vegas in 2007. The entire investment was lost during the meltdown, and Highland sued the bank claiming fraud. The firm alleged Credit Suisse did not get a qualified appraisal of the property and knowingly manipulated its valuation.
According to court records, Credit Suisse had reported the property was valued at $891 million based on an appraisal from real estate services and investment firm CBRE. But a valuation under standards set by federal law would have placed the market value at less than $540 million, about the total of the entire loan for the deal. The lower valuation would have given investors considerably less wiggle room should the real estate market sink as it did.
Credit Suisse said it was not responsible as long as an appraisal was believed to be done in good faith and attempted to show in court that correct disclosures were made to investors.
A trial court had previously sided with Highland.
Texas appellate judge Elizabeth Lang-Miers, in a 35-page decision, wrote that the original contract’s disclaimers did not bar Highland’s claims and upheld the jury’s decision that Credit Suisse knowingly presented an appraisal that did not meet certain standards and withheld certain facts.
“Credit Suisse respectfully disagrees with this decision, does not believe it is supported by applicable law, and accordingly intends to seek further review,” the bank said in a statement.
A pair of funds managed by Highland would collect the total under judgment and almost $64 million in estimated interest.
“Today’s ruling is a major milestone in our efforts to recover damages for our investors,” Highland co-founder James Dondero said in a prepared statement. “We are pleased the appellate court recognized the harm caused to our investors by Credit Suisse’s fraud and breaches of contract.”
Claymore and Highland Capital are represented by William T. Reid IV of Austin-based Reid Collins & Tsai.
“In the aftermath of the 2008 financial crisis, few Wall Street banks have defended their conduct at trial — and for good reason, as this decision confirms,” Reid said in a written statement. “The Dallas Court of Appeal ruling affirmed and endorsed the very detailed, well-reasoned opinion of the trial court that ordered Credit Suisse to return the money our clients lost as a result of the bank’s fraud and other wrongdoing.
“While most victims of the 2008 financial crisis have taken settlements for pennies on the dollar, my team and Highland were committed to trying to achieve a better result for Highland’s investors,” Reid said. “In the end, I believe that justice was served in a language Wall Street banks can understand — money.”
The other attorneys representing Claymore and Highland Capital are Reid Collins & Tsai lawyers Lisa Tsai, Rachel Fleishman, Nathan Palmer, Josh Bruckerhoff and Scott Saldaña. Other lawyers involved for Highland Capital include Christopher Bartolomucci, Edmund LaCour and Harker Rhodes of Kirkland & Ellis in Washington, D.C. and Dallas appellate law experts Jeff Levinger and James Stanton.
The lawyers representing Credit Suisse include David Lender, Gregory Silbert, Ray Guy and Luna Barrington of Weil, Gotshal & Manges; E. Joshua Rosenkranz, Robert Loeb, Kevin Arlyck, Anjali Dalal of Orrick (in NY) and Claudia Wilson Frost in Orrick’s Houston office; and Dallas trial lawyer Jeff Tillotson.
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