Latham Secures $1B Ruling for UBS in Case Over Failed Deal with Hedge Fund Manager

G THE B IN EN V C R H E

A N 8 8 D 8 B 1 AR SINCE www. NYLJ.com Volume 263—NO. 20 Thursday, january 30, 2020 Latham Secures $1B Ruling for UBS in Case Over Failed Deal With Hedge Fund Manager

By Tom McParland

Latham & Watkins secured a $1 billion judgment Wednesday on behalf of UBS Securities in a long- running contract dispute against bankrupt hedge fund manager Highland Capital Management, which dates back to the early days of the financial crisis. In a 40-page decision made pub- lic late Wednesday afternoon, Manhattan Supreme Court Jus- tice Marcy Friedman ordered two funds affiliated with Dallas-based Highland to pay $520 million in

damages and another $520 million an Werm u th/B l oom b erg in statutory interest resulting from Ste f their refusal to cover UBS's losses eventually be able to recoup its persuaded the bank to restructure under a failed agreement to securi- initial investment plus interest. the debt to avoid an $86 million tize collateralized loan obligations The deal, however, collapsed payment. and credit-default swaps in 2008. under the weight of the 2008 finan- According to the amended com- UBS claimed in a February cial crisis, and UBS sued in Man- plaint, UBS was owed more than 2009 complaint that it was owed hattan Supreme Court to recover $686 million by the time Highland's $745 million under a series of its losses, after the Highland funds affiliates defaulted on their obliga- agreements to purchase and stopped posting collateral as UBS's tions and UBS terminated the deal "warehouse" securities for the exposure grew. The bank filed an in December 2008. Highland-controlled funds, with updated lawsuit in June 2010, alleg- Friedman's decision on Wednes- the expectation that it would ing that Highland had fraudulently day followed a two-week bench Thursday, january 30, 2020 trial on the parties' contract claims said his client was "pleased with as president, though he plans to in July 2018. The judge bifurcat- the result of the trial and looks stay on as an employee of the firm. ed the proceedings, and ordered forward to final resolution of the Latham's trial team was led UBS's remaining claims, including matter." by Clubok, who chairs Latham's breach of the duty of good faith A spokeswoman for Highland did global securities litigation and and fair dealing, fraud and fraudu- not immediately provide comment professional liability practice, lent conveyance, to be put to be on the ruling. and Elizabeth Deeley, a partner tried later in a second-phase jury Highland filed for Chapter 11 in the firm's San Francisco office. trial. bankruptcy protection in Octo- The team also included Washing- UBS is seeking punitive damages ber amid legal disputes with its ton, D.C.-based counsel Susan on those claims, potentially expos- investors. Known as a pioneer in Engel, New York partner Kuan ing Highland to billions more in trading risky corporate loans, the Huang and New York associate further liability if the case goes firm and its founder, James Don- Alysha Naik, as well as Michael to trial. dero, managed tens of billions of Onufer, a litigation partner with In her ruling, Friedman said the dollars in assets during its heyday Kirkland & Ellis. terms of the agreements "unam- in 2007 but sustained losses during Highland and its funds are repre- biguously" entitled UBS to recover the financial crisis and has been sented by Angela J. Somers, Jeffrey losses on its retained assets. She entangled in lawsuits ever since. E. Gross and Yonah Jaffe of Reid also rejected Highland's counter- Media outlets reported earlier Collins & Tsai. claims and attempts to offset the this month that Highland and a damages. committee of unsecured creditors, @ | Tom McParland can be reached Andrew Clubok, who led the including UBS, had agreed to a deal at [email protected]. Twitter: Latham team representing UBS, for Dondero to relinquish his role @TMcParlandALM

Reprinted with permission from the January 30, 2020 edition of the NEW YORK LAW JOURNAL © 2020 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382 or [email protected]. # NYLJ-01302020-433924