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Cayce\n _____________ Clerk\n\n In the Matter of Highland Capital Management, L.P.\n\n Debtor,\n\n Charitable DAF Fund, ; CLO Holdco, Limited,\n\n Appellants,\n\n versus\n\n Highland Capital Management, L.P.,\n\n Appellee.\n ________________________________\n\n Appeal from the United States District Court\n for the Northern District of Texas\n USDC No. 3:23-CV-1503\n ________________________________\n\n CLERK\u2019S OFFICE:\n Under Fed. R. App. P.42(b), the appeal is dismissed as of April 23,\n 2025, pursuant to appellant\u2019s motion.\n\f Case: 24-10880 Document: 62-1 Page: 2 Date Filed: 04/23/2025\nCase 3:23-cv-01503-B Document 42 Filed 04/23/25 Page 2 of 3 PageID 8082\n No. 24-10880\n\n\n\n\n LYLE W. CAYCE\n Clerk of the United States Court\n of Appeals for the Fifth Circuit\n\n\n By: ___________________\n Melissa B. Courseault, Deputy Clerk\n\n ENTERED AT THE DIRECTION OF THE COURT\n\n\n\n\n 2\n\f Case: 24-10880 Document: 62-2 Page: 1 Date Filed: 04/23/2025\nCase 3:23-cv-01503-B Document 42 Filed 04/23/25 Page 3 of 3 PageID 8083\n\n\n\n United States Court of Appeals\n FIFTH CIRCUIT\n OFFICE OF THE CLERK\nLYLE W. CAYCE TEL. 504-310-7700\nCLERK 600 S. MAESTRI PLACE,\n Suite 115\n NEW ORLEANS, LA 70130\n\n April 23, 2025\n\n\nMs. Karen S. Mitchell\nNorthern District of Texas, Dallas\nUnited States District Court\n1100 Commerce Street\nEarle Cabell Federal Building\nRoom 1452\nDallas, TX 75242\n\n No. 24-10880 Charitable DAF Fund v. Highland Capital\n USDC No. 3:23-CV-1503\n\n\nDear Ms. Mitchell,\nEnclosed is a copy of the judgment issued as the mandate.\n\n\n Sincerely,\n LYLE W. CAYCE, Clerk\n\n By: _________________________\n Melissa B. Courseault, Deputy Clerk\n 504-310-7701\ncc w/encl:\n Mr. Zachery Z. Annable\n Mr. Jonathan Bridges\n Mr. Gregory Vincent Demo\n Ms. Melissa Sue Hayward\n Mr. John A. Morris\n Mr. Jeffrey N. Pomerantz\n Mr. Griffin Simon Rubin\n Mr. Mazin Ahmad Sbaiti\n Ms. Hayley R. Winograd\n\f","ocr_status":2,"date_upload":"2025-04-30T07:44:24.795849-07:00","document_number":"42","attachment_number":null,"pacer_doc_id":"177017649019","is_available":true,"is_free_on_pacer":null,"is_sealed":null,"document_type":1,"description":"","acms_document_guid":""}],"date_created":"2025-04-30T07:43:07.104201-07:00","date_modified":"2026-02-25T14:35:16.872909-08:00","date_filed":"2025-04-23","time_filed":null,"entry_number":42,"recap_sequence_number":"2025-04-23.001","pacer_sequence_number":130,"description":"ORDER of USCA as to 41 Notice of Appeal filed by CLO Holdco Ltd, Charitable DAF Fund LP. The appeal is dismissed pursuant to appellant's motion. 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1 Exhibit(s) A) (Annable, Zachery) (Entered: 06/27/2024)","tags":[]},{"resource_uri":"https://www.courtlistener.com/api/rest/v4/docket-entries/401892711/","id":401892711,"docket":"https://www.courtlistener.com/api/rest/v4/dockets/67564951/","recap_documents":[{"resource_uri":"https://www.courtlistener.com/api/rest/v4/recap-documents/411483442/","id":411483442,"tags":[],"absolute_url":"/docket/67564951/39/charitable-daf-fund-lp-v-highland-capital-management-lp/","date_created":"2024-09-10T15:12:58.378639-07:00","date_modified":"2025-07-17T12:44:12.885512-07:00","sha1":"a989f9f2ebb33ebcb05ac46cf7832218447d2471","page_count":18,"file_size":190039,"filepath_local":"recap/gov.uscourts.txnd.378781/gov.uscourts.txnd.378781.39.0.pdf","filepath_ia":"https://archive.org/download/gov.uscourts.txnd.378781/gov.uscourts.txnd.378781.39.0.pdf","ia_upload_failure_count":null,"thumbnail":null,"thumbnail_status":0,"plain_text":" Case 3:23-cv-01503-B Document 39 Filed 09/10/24 Page 1 of 18 PageID 8060\n\n\n\n UNITED STATES DISTRICT COURT\n NORTHERN DISTRICT OF TEXAS\n DALLAS DIVISION\n\n In re: \u00a7\n HIGHLAND CAPITAL \u00a7\n MANAGEMENT, L.P., \u00a7\n \u00a7\n Debtor, \u00a7\n ---------------------------------------------------- \u00a7\n \u00a7\n THE CHARITABLE DAF FUND, L.P. \u00a7\n and CLO HOLDCO, LTD., \u00a7\n \u00a7\n \u00a7\n Plaintiffs/Appellants, \u00a7\n \u00a7\n v. \u00a7 CIVIL ACTION NO. 3:23-CV-1503-B\n \u00a7\n \u00a7\n HIGHLAND CAPITAL \u00a7\n MANAGEMENT, L.P., et al., \u00a7\n \u00a7\n Defendants/Appellees. \u00a7\n\n MEMORANDUM OPINION & ORDER\n\n Before the Court is Plaintiffs/Appellants The Charitable DAF Fund, L.P. (\u201cDAF\u201d) and CLO\n\nHoldco, Ltd. (\u201cCLO Holdco\u201d)\u2019s appeal from the bankruptcy court\u2019s Memorandum Opinion and\n\nOrder dismissing the case. For the reasons that follow, the bankruptcy court\u2019s Order is AFFIRMED.\n\n I.\n\n BACKGROUND\n\n This is an appeal arising out of an adversary proceeding in a bankruptcy case. The Debtor,\n\nHighland Capital Management, L.P. (\u201cHCM\u201d), filed for Chapter 11 bankruptcy on October 16,\n\n2019, in the United States Bankruptcy Court for the District of Delaware and that court transferred\n\nvenue to the United States Bankruptcy Court for the Northern District of Texas. In re Highland Cap.\n\n -1-\n\f Case 3:23-cv-01503-B Document 39 Filed 09/10/24 Page 2 of 18 PageID 8061\n\n\n\nMgmt. L.P., 2022 WL 780991, at *1 (Bankr. N.D. Tex. Mar. 11, 2022). Appellants DAF and CLO\n\nHoldco (collectively, \u201cAppellants\u201d) initiated this adversary proceeding based on conduct allegedly\n\nengaged in by Defendant/Appellee HCM during HCM\u2019s Chapter 11 bankruptcy proceedings. Doc.\n\n18-2, R., 102. 1\n\n Appellants have alleged the following: In 2017, DAF\u2014through its holding entity CLO\n\nHoldco\u2014purchased 49.02% of the available shares of Highland CLO Funding, Ltd. (\u201cHCLOF\u201d)\n\nbased upon investment advice from HCM. Doc. 18-2, R., 107. Another entity, HarbourVest,\n\nacquired 49.98% of the HCLOF shares, while HCM and its employees acquired the remaining 1%\n\nof HCLOF. Id. The HCLOF Member Agreement contained a \u201cRight of First Refusal\u201d provision\n\nspecifying that, when an HCLOF member, such as Appellants or HCM, intends to sell its HCLOF\n\ninterest to a third-party, \u201cthe other members have the first right of refusal to purchase those interests\n\npro rata for the same price that the member has agreed to sell.\u201d Id. at 120.\n\n During HCM\u2019s bankruptcy proceedings, HarbourVest filed a proof of claims against HCM,\n\nseeking over $300 million in damages from HCM. Id. at 107\u201309. HCM offered to settle\n\nHarbourVest\u2019s claims by purchasing HarbourVest\u2019s 49.98% interest in HCLOF (\u201cHarbourVest\n\nSettlement\u201d). Id. at 110. CLO Holdco then filed an objection to the HarbourVest Settlement,\n\ncontesting that the Settlement violated the Right of First Refusal provision in the HCLOF Member\n\nAgreement because CLO Holdco was not first given an opportunity to purchase HarbourVest\u2019s\n\nshares at the same price. Doc. 18-19, R. 4008\u201317. However, CLO Holdco later withdrew this\n\nobjection at the Settlement Hearing. Id. at 4103\u201304. The Bankruptcy Court subsequently approved\n\nthe HarbourVest Settlement. Doc. 18-20, R., 4246\u201352. At the time of the HarbourVest Settlement,\n\n\n 1\n The parties\u2019 record on appeal is a multi-volume record found in Document 18 on the docket. The\nrecord cites refer to the parties\u2019 pagination of that multi-volume record.\n\n -2-\n\f Case 3:23-cv-01503-B Document 39 Filed 09/10/24 Page 3 of 18 PageID 8062\n\n\n\nHCM provided evidence that the HarbourVest ownership interest in HCLOF was worth $22.5\n\nmillion. Doc. 18-2, R., 117. Appellants later discovered, however, that the HarbourVest interest was\n\nactually worth \u201calmost double that amount.\u201d Id.\n\n The final reorganization plan in the underlying bankruptcy proceedings included an\n\nexculpatory provision, see Doc. 18-12, R., 2380, which provided that the parties could not bring any\n\ncause of action against the Debtors\u2014here, HCM\u2014arising from the underlying bankruptcy\n\nproceedings unless HCM engaged in \u201cbad faith, fraud, gross negligence, criminal misconduct, or\n\nwillful misconduct.\u201d Id. at 2432\u201333.\n\n Appellants assert five claims in this suit. Count 1 is a breach of fiduciary duty claim brought\n\nunder \u00a7 206 of the Investment Advisors Act (\u201cIAA\u201d), 15 U.S.C. \u00a7 80b\u20136, based on the theory that\n\nHCM breached their fiduciary duties to Appellants by acquiring the HarbourVest ownership interest\n\nin HCLOF without first offering it to Appellants. 2 Doc. 18-2, R., 113\u201319. Count 2 is a breach of\n\ncontract claim, alleging that the HarbourVest Settlement breached the Right of First Refusal\n\nprovision found in the HCLOF Member Agreement. Id. at 120\u201321. Count 3 is a negligence claim\n\nbased on the theory that HCM should have known its actions violated the IAA. Id. at 121\u201322. Count\n\n4 is a civil Racketeer Influenced and Corrupt Organizations (\u201cRICO\u201d) claim arising out of the\n\nHarbourVest Settlement. Id. at 122\u201326. And Count 5 is a claim for tortious interference with an\n\nexisting contract arising out of the HCLOF Member Agreement\u2019s Right of First Refusal provision.\n\nId. at 126\u201327.\n\n\n\n\n 2\n The parties dispute what breach of fiduciary claims Appellants asserted in their Complaint. The\nCourt will address this dispute in the Analysis section of this Order.\n\n -3-\n\f Case 3:23-cv-01503-B Document 39 Filed 09/10/24 Page 4 of 18 PageID 8063\n\n\n\n This is the second time that this matter has been appealed to this Court. Previously, this\n\nCourt affirmed in part and reversed in part the bankruptcy court\u2019s dismissal of the case based on\n\ncollateral estoppel and judicial estoppel. See In re Highland Cap. Mgmt., L.P., 643 B.R. 162, 167 (N.D.\n\nTex. 2022) (Boyle, J.). This Court reversed the decision on collateral estoppel grounds and affirmed\n\nin part and reversed in part the decision on judicial estoppel grounds. Id. at 173\u201375. This Court\n\nthen remanded the case to the bankruptcy court to make findings on the inadvertence element of\n\njudicial estoppel, and to otherwise rule on the merits of the case. Id. at 175.\n\n After remand, HCM subsequently filed a Renewed Motion to Dismiss all five of Appellants\u2019\n\nclaims. See Doc. 18-18, R., 3844\u201381. The bankruptcy court granted the Renewed Motion to Dismiss\n\nin its entirety and dismissed all five claims with prejudice. See Doc. 18-1, R., 41. Appellants\n\nsubsequently appealed this final order, arguing that the bankruptcy court erred in dismissing their\n\nclaims, as well as not granting them leave to file an amended complaint. See generally Doc. 22,\n\nAppellants\u2019 Br. The Court considers the Appeal below.\n\n II.\n\n LEGAL STANDARDS\n\nA. Bankruptcy Appeal\n\n Final judgments, orders, and decrees of a bankruptcy court may be appealed to a federal\n\ndistrict court. 28 U.S.C. \u00a7 158(a). Because the district court functions as an appellate court in this\n\nscenario, it applies the same standards of review that federal appellate courts use when reviewing\n\ndistrict court decisions. In re Webb, 954 F.2d 1102, 1103\u201304 (5th Cir. 1992) (citations omitted). The\n\nCourt reviews the bankruptcy court\u2019s conclusions of law de novo and the bankruptcy court\u2019s findings\n\nof fact for clear error. Drive Fin. Servs., L.P. v. Jordan, 521 F.3d 343, 346 (5th Cir. 2008).\n\n\n -4-\n\f Case 3:23-cv-01503-B Document 39 Filed 09/10/24 Page 5 of 18 PageID 8064\n\n\n\nB. Motion to Dismiss\n\n Under Federal Rule of Civil Procedure 8(a)(2), a complaint must contain \u201ca short and plain\n\nstatement of the claim showing that the pleader is entitled to relief.\u201d Rule 12(b)(6) authorizes a court\n\nto dismiss a plaintiff\u2019s complaint for \u201cfailure to state a claim upon which relief can be granted.\u201d FED.\n\nR. CIV. P. 12(b)(6). In considering a Rule 12(b)(6) motion to dismiss, \u201cthe Court must accept all well-\n\npleaded facts as true, and view them in the light most favorable to the appellant.\u201d Walker v. Beaumont\n\nIndep. Sch. Dist., 938 F.3d 724, 735 (5th Cir. 2019) (alteration in original) (citation omitted). But the\n\nCourt will \u201cnot look beyond the face of the pleadings to determine whether relief should be granted\n\nbased on the alleged facts.\u201d Spivey v. Robertson, 197 F.3d 772, 774 (5th Cir. 1999).\n\n To survive a motion to dismiss, plaintiffs must plead \u201cenough facts to state a claim to relief\n\nthat is plausible on its face.\u201d Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). \u201cThreadbare recitals\n\nof the elements of a cause of action, supported by mere conclusory statements, do not suffice.\u201d\n\nAshcroft v. Iqbal, 556 U.S. 662, 678 (2009). \u201cA claim has facial plausibility when the appellant pleads\n\nfactual content that allows the court to draw the reasonable inference that the defendant is liable\n\nfor the misconduct alleged.\u201d Id. \u201cThe plausibility standard is not akin to a \u2018probability requirement,\u2019\n\nbut it asks for more than a sheer possibility that a defendant has acted unlawfully.\u201d Id. (quoting\n\nTwombly, 550 U.S. at 556). When well-pleaded facts fail to meet this standard, \u201cthe complaint has\n\nalleged\u2014but it has not shown\u2014that the pleader is entitled to relief.\u201d Id. at 679 (alteration in original)\n\n(citation omitted).\n\n\n\n\n -5-\n\f Case 3:23-cv-01503-B Document 39 Filed 09/10/24 Page 6 of 18 PageID 8065\n\n\n\n III.\n\n ANALYSIS\n\n The Court first affirms the bankruptcy court\u2019s finding that judicial estoppel bars Counts 2\n\nand 5 of Appellants\u2019 Complaint because Appellants took the position that the HarbourVest\n\nSettlement did not violate the Right of First Refusal provision. The Court next affirms the dismissal\n\nof the Appellants\u2019 breach of fiduciary duty claim. Section 206 of the IAA does not confer a private\n\ncause of action for damages, Appellants did not assert a claim under \u00a7 215 of the IAA, and\n\nAppellants did not plead any state law breach of fiduciary duty claims in their Complaint. Next, the\n\nCourt affirms the bankruptcy court\u2019s dismissal of Appellants\u2019 negligence claim. Lastly, the Court\n\nconcludes that the bankruptcy court did not err by not granting Appellants leave to amend their\n\nRICO claim or any of their other claims.\n\nA. Judicial Estoppel Bars Counts 2 and 5 of the Complaint.\n\n Judicial estoppel is an equitable common law doctrine aimed at preventing a party from\n\nasserting an inconsistent legal position from a previous proceeding. In re Coastal Plains, Inc., 179 F.3d\n\n197, 205 (5th Cir. 1999). \u201cThe purpose of the doctrine is \u2018to protect the integrity of the judicial\n\nprocess\u2019, by \u2018prevent[ing] parties from playing fast and loose with the courts to suit the exigencies of\n\nself interest.\u2019\u201d Id. (quoting Brandon v. Interfirst Corp., 858 F.2d 266, 268 (5th Cir. 1988)) (alteration\n\nin original). A court examines three criteria when determining the applicability of judicial estoppel:\n\n\u201c(1) the party against whom judicial estoppel is sought has asserted a legal position which is plainly\n\ninconsistent with a prior position; (2) a court accepted the prior position; and (3) the party did not\n\nact inadvertently.\u201d Reed v. City of Arlington, 650 F.3d 571, 574 (5th Cir. 2011) (en banc).\n\n\n\n\n -6-\n\f Case 3:23-cv-01503-B Document 39 Filed 09/10/24 Page 7 of 18 PageID 8066\n\n\n\n This Court previously affirmed the bankruptcy court\u2019s finding that the first two elements of\n\njudicial estoppel are satisfied here\u2014i.e., that Appellants previously took the position that the\n\nHarbourVest Settlement did not violate the Right of First Refusal provision and that this position\n\nled to the bankruptcy court accepting the HarbourVest Settlement. In re Highland Cap. Mgmt., L.P.,\n\n643 B.R. 162, 173\u201375 (N.D. Tex. 2022) (Boyle, J.). But the Court remanded to the bankruptcy court\n\nto determine whether the third element, inadvertence, was also satisfied. Id. at 176. The Court now\n\naffirms the bankruptcy court\u2019s finding that Appellants did not act inadvertently, and that they are\n\njudicially estopped from pursuing Claims 2 and 5.\n\n The Court reviews the bankruptcy court\u2019s decision to invoke judicial estoppel for abuse of\n\ndiscretion. See Cox v. Richards, 761 F. App\u2019x 244, 246 (5th Cir. 2019). \u201cA [bankruptcy] court abuses\n\nits discretion if it: (1) relies on clearly erroneous factual findings; (2) relies on erroneous conclusions\n\nof law; or (3) misapplies the law to the facts.\u201d In re Chamber of Com. of United States of Am., 105 F.4th\n\n297, 311 (5th Cir. 2024) (citations omitted). The question of whether the third element of judicial\n\nestoppel, inadvertence, is satisfied is a finding of fact. Love v. Tyson Foods, Inc., 677 F.3d 258, 262\n\n(5th Cir. 2012). So, the Court must determine whether the bankruptcy court\u2019s conclusion as to the\n\nthird element was clearly erroneous. In re Chamber of Com. of United States of Am., 105 F.4th at 311.\n\nThe Court concludes that it was not.\n\n A party\u2019s failure to disclose a claim arising out of a bankruptcy case is only inadvertent if the\n\nparty either (1) lacked knowledge of the claim or (2) the party has no motive to conceal the claims.\n\nIn re Coastal Plains, Inc., 179 F.3d at 210. Neither apply here. Appellants knew about the potential\n\nbreach of contract claim and the potential tortious interference with a contract claim arising from\n\nthe Right of First Refusal provision because CLO Holdco, one of the plaintiffs in this suit, initially\n\n\n -7-\n\f Case 3:23-cv-01503-B Document 39 Filed 09/10/24 Page 8 of 18 PageID 8067\n\n\n\nobjected to the underlying HarbourVest Settlement on grounds that it would violate the Right of\n\nFirst Refusal provision. Doc. 18-19, R. 4014\u201315. Claims 2 and 5 accuse HCM of the same violations\n\nwith respect to the same settlement. Doc. 18-2, R., 120\u201321, 126\u201327. Thus, their objection in the\n\nunderlying bankruptcy proceedings establishes that Appellants had knowledge of these two claims.\n\n The only argument Appellants raise in response to the bankruptcy court\u2019s finding is that they\n\ndid not know the exact value of the HarbourVest interest\u2014the assets that would be purchased by\n\nHCM in the HarbourVest Settlement. Doc. 22, Appellants\u2019 Br., 37\u201338. The bankruptcy court\n\ncorrectly rejected this argument because Appellants did not learn it could potentially assert a breach\n\nof contract claim or tortious interference with a contract claim after the HarbourVest Settlement\n\nwas approved. Instead, Appellants only learned they could potentially recover more damages from\n\nasserting these claims after the HarbourVest Settlement was approved. Later learning that a claim\n\ncould potentially lead to recovering more damages does not establish that they lacked knowledge of\n\ntheir claims as necessary to establish inadvertence. Cf. Howard v. Am. Healthways Servs., LLC, No. SA-\n\n13-CV-1164-XR, 2014 WL 2168401, at *3 (W.D. Tex. May 22, 2014) (concluding a debtor\u2019s failure\n\nto disclose a potential claim was not inadvertent when the debtor knew about the claim but did not\n\nknow she could recover monetary damages if she pursued the claim).\n\n Appellants offer no argument in response to the bankruptcy court\u2019s conclusion that\n\nAppellants would have plenty of motive to take inconsistent positions. In re Coastal Plains, Inc., 179\n\nF.3d at 210. The Court concludes that the bankruptcy court did not err in this finding either.\n\n The Court ultimately concludes that the bankruptcy court did not abuse its discretion to\n\napply judicial estoppel. Appellants offer numerous arguments for why the Court should not apply\n\njudicial estoppel in this case. Doc. 22, Appellants\u2019 Br., 35\u201339. However, the Court largely rejected\n\n\n\n -8-\n\f Case 3:23-cv-01503-B Document 39 Filed 09/10/24 Page 9 of 18 PageID 8068\n\n\n\nthese arguments previously when it affirmed the bankruptcy court\u2019s finding that the first two\n\nelements of judicial estoppel were satisfied, In re Highland Cap. Mgmt., L.P., 643 B.R. at 173\u201375, and\n\nthe Court will not reconsider its previous decision here. And because there is no clear error as to\n\nthe third element, the Court now concludes the bankruptcy court did not abuse its discretion in\n\ninvoking the judicial estoppel doctrine. Accordingly, the Court affirms the bankruptcy court\n\ngranting the Renewed Motion to Dismiss as to Counts 2 and 5 of Appellants\u2019 Complaint.\n\nB. The Court Affirms the Bankruptcy Court Dismissing Count 1 of the Complaint.\n\n The Court next turns to whether Appellants stated a claim for breach of fiduciary duties. At\n\nthe outset, the Court notes that the parties dispute the type of fiduciary duty claims Appellants have\n\nasserted in their Complaint. Compare Doc. 22, Appellants\u2019 Br., 12\u201313, with Doc. 27, Appellee\u2019s Br.,\n\n27, 32\u201333. After reviewing the Complaint, the Court concludes that Appellants have only asserted\n\none breach of fiduciary duty claim under \u00a7 206 of the IAA.\n\n Section 206 of the IAA imposes fiduciary duties upon investment advisors to act in the best\n\ninterest of their investors. 15 U.S.C. \u00a7 80b-6; see also Nat\u2019l Ass\u2019n of Priv. Fund Managers v. Sec. & Exch.\n\nComm\u2019n, 103 F.4th 1097, 1103 (5th Cir. 2024) (noting that the IAA \u201crecognizes a fiduciary duty\n\nbetween an investment adviser and his client\u201d). Appellants go to great lengths discussing rules\n\npromulgated by the SEC defining the duties owed by investment advisors to their clients. Doc. 22,\n\nAppellants\u2019 Br., 16\u201320. However, \u00a7 206 does not confer a private cause of action. Transamerica Mortg.\n\nAdvisors, Inc. (TAMA) v. Lewis, 444 U.S. 11, 24 (1979). Thus, the bankruptcy court correctly dismissed\n\nthis claim.\n\n The main thrust of Appellants\u2019 arguments appears to be that HCM breached the fiduciary\n\nduties created by \u00a7 206 of the IAA, which then gives rise to an equitable claim under \u00a7 215. Doc.\n\n\n\n -9-\n\f Case 3:23-cv-01503-B Document 39 Filed 09/10/24 Page 10 of 18 PageID 8069\n\n\n\n32, Reply Br., 2, 4\u20135. The problem with this argument is that the Appellants failed to plead a \u00a7 215\n\nclaim in their Complaint. See Doc. 18-1, R., 32\u201333.\n\n Section 215 of the IAA dictates that \u201c[e]very contract made in violation of any provision of\n\n[the IAA] and every contract heretofore or hereafter made, the performance of which involves the\n\nviolation of . . . [the IAA] . . . shall be void.\u201d 15 U.S.C. \u00a7 80b-15(b). The Supreme Court has\n\ninterpreted \u00a7 215 of the IAA to render certain contracts void and to allow appellants to maintain \u201ca\n\nsuit for rescission or for an injunction against continued operation of the contract, and for\n\nrestitution.\u201d Transamerica Mortg. Advisors, 444 U.S. at 19. The Complaint never cites \u00a7 215 of the\n\nIAA\u2014the breach of fiduciary duties section only discusses \u00a7\u00a7 204 and 206 of the IAA, as well as\n\nvarious federal regulations interpreting \u00a7 206. Doc. 18-2, R., 113\u201319. Appellants also did not allege\n\nin their Complaint that the HarbourVest Settlement was void because it violated the IAA 3 and that,\n\nbecause the Settlement is void, Appellants were entitled to recover the HarbourVest interest under\n\na theory of restitution. Id.; see Transamerica Mortg. Advisors, 444 U.S. at 19. Appellants, therefore, did\n\nnot assert a claim under \u00a7 215 of the IAA.\n\n Appellants\u2019 arguments that they properly asserted a \u00a7 215 claim in their Complaint fail. The\n\nargument goes as follows: Section 215 of the IAA allows for equitable relief if a contract violates the\n\nIAA, Appellants asked for disgorgement in their Complaint, thus they asserted a claim under \u00a7 215.\n\nDoc. 22, Appellants\u2019 Br., 21. This is far too attenuated. In Appellants\u2019 view, they properly asserted\n\na claim under a statutory provision that was mentioned nowhere in their Complaint solely because\n\n\n\n\n 3\n The Complaint only alleges that any attempt by Defendants to waive their alleged breach of the\nIAA\u2019s fiduciary duties under are void. Doc. 18-2, R., 166. Appellants did not, however, allege that the\nHarbourVest Settlement itself or any other contract entered into by Defendants is void as would be necessary\nto assert a claim under \u00a7 215.\n\n -10-\n\f Case 3:23-cv-01503-B Document 39 Filed 09/10/24 Page 11 of 18 PageID 8070\n\n\n\nof one of five forms of relief 4 they claimed to be entitled to recover. Such a conclusion would\n\neffectively require defendants to look at each remedy a plaintiff requested and then by process of\n\nreverse engineering, determine every possible statutory provision that a plaintiff could conceivably\n\nuse to seek that relief. Appellants entirely fail to explain how HCM would have fair notice of such a\n\nclaim. Cf. Sims v. City of Madisonville, 894 F.3d 632, 643 (5th Cir. 2018) (affirming a district court\u2019s\n\ndecision to not consider a claim that was not mentioned in the complaint because the defendant\n\nwas not given fair notice that plaintiff intended to assert such a claim).\n\n Appellants also contest that the lower court \u201cincorrectly assumed that Appellants were not\n\nseeking relief under \u00a7 215 of the [IAA] even though it featured prominently in Appellants\u2019 Response\n\nbriefing.\u201d Doc. 22, Appellants\u2019 Br., 12. However, \u201c[i]t is wholly inappropriate to use a response to a\n\nmotion to dismiss to essentially raise a new claim for the first time.\u201d United States ex rel. Grynberg Prod.\n\nCorp. v. Kinder Morgan CO2 Co., L.P., 491 F. Supp. 3d 220, 233 (N.D. Tex. 2020) (Kinkeade, J.)\n\n(citation and internal alterations omitted). As Appellants were not permitted to allege a new claim\n\nin their Response to HCM\u2019s Renewed Motion to Dismiss, any purported \u00a7 215 claim was not\n\nproperly before the bankruptcy court. Therefore, the Court agrees with the bankruptcy court\u2019s\n\nconclusion that Appellants failed to plead a \u00a7 215 claim in their Complaint.\n\n Next, the Court concludes that Appellants did not assert a state law breach of fiduciary duty\n\nclaim in their Complaint. Appellants contend that a violation of a fiduciary duty owed under \u00a7 206\n\nof the IAA can be used to maintain a state law breach of fiduciary duty claim. Doc. 22, Appellants\u2019\n\nBr., 23\u201328. However, as with Appellants\u2019 purported \u00a7 215 claim, the Complaint does not assert a\n\nstate law claim for breach of fiduciary duty. The breach of fiduciary duties section of the Complaint\n\n\n 4\n Appellants also asked for \u201cdamages, exemplary damages, attorneys\u2019 fees and costs.\u201d Doc. 18-1, R.,\n119.\n\n -11-\n\f Case 3:23-cv-01503-B Document 39 Filed 09/10/24 Page 12 of 18 PageID 8071\n\n\n\nexclusively discusses federal law and federal regulations, Doc. 18-2, R., 113\u201319, and the Complaint\n\nmakes no mention of any state law regarding fiduciary duties. Id. at 103\u201313. Because Appellants did\n\nnot assert a state law breach of fiduciary duty claim, the Court agrees with the bankruptcy court that\n\nthey failed to state such a claim.\n\n To the extent Appellants argue it is sufficient to assert a claim under state law through the\n\nComplaint\u2019s allegation that HCM owed them a duty of loyalty and a duty of care, Appellants are\n\nmistaken. As Appellants have argued throughout this lawsuit, see Doc. 18-21, R., 4427, the IAA\n\nimposes the duties of loyalty and care upon investment advisors. SEC v. Ambassador Advisors, LLC,\n\n576 F. Supp. 3d 286, 300 (E.D. Pa. 2021); see also Commission Interpretation Regarding Standard of\n\nConduct for Investment Advisers, 84 Fed. Reg. 33,669-01 (June 5, 2019). Thus, simply alleging HCM\n\nowed these fiduciary duties, while exclusively discussing federal law, is insufficient to have raised a\n\nstate law claim in their Complaint. Because the Court concludes that Appellants did not assert a\n\nstate law breach of fiduciary duty claim, the Court need not address the bankruptcy court\u2019s\n\nconclusion that Appellants failed to allege sufficient facts to state a claim for breach of fiduciary duty\n\nunder Texas law or the parties\u2019 dispute about whether Texas law or Guerney law would apply.\n\n In sum, Appellants only asserted a breach of a fiduciary duty claim under \u00a7 206 of the IAA,\n\nwhich does not confer a private cause of action. Thus, the Court affirms the bankruptcy court\u2019s\n\ndismissal of the Appellants\u2019 breach of fiduciary duty claim.\n\nC. The Court Affirms the Bankruptcy Court\u2019s Dismissal of Count 3 of the Complaint.\n\n The bankruptcy court dismissed Count 3 of Appellants\u2019 Complaint\u2014a negligence claim\u2014\n\nbecause the final reorganization plan in the underlying bankruptcy proceedings includes an\n\nexculpation provision that prohibits Appellants from later asserting a negligence claim arising out\n\n\n\n -12-\n\f Case 3:23-cv-01503-B Document 39 Filed 09/10/24 Page 13 of 18 PageID 8072\n\n\n\nof HCM\u2019s conduct in the bankruptcy proceedings. Doc. 18-1, R., 34. On appeal, Appellants contend\n\nthe dismissal was erroneous for two reasons. First, Appellants argue that the Plan\u2019s exculpation\n\nprovision does not bar their negligence claim because they allege HCM breached a duty that is\n\nunwaivable under federal law. Doc. 22, Appellants\u2019 Br., 33\u201335. Second, Appellants argue the\n\nexculpation provision does not prohibit Appellants from asserting a claim for gross negligence, and\n\nAppellants properly pleaded such a claim. Doc. 22, Appellants\u2019 Br., 13. The Court disagrees on both\n\ncounts.\n\n First, the bankruptcy Plan\u2019s exculpation provision bars Appellants\u2019 negligence claim.\n\nAppellants argue that the Plan\u2019s exculpation provision does not bar their negligence claim because\n\ntheir negligence claim is premised on duties of care and loyalty imposed by \u00a7 206 of the IAA and\n\nthat these duties are unwaivable under 15 U.S.C. \u00a7 80b-15. Doc. 22, Appellants\u2019 Br., 34\u201335.\n\nHowever, \u00a7 80b-15 only prevents an investment advisor from waiving the IAA\u2019s fiduciary duties by\n\ncontract, see 15 U.S.C. \u00a7 80b-15, which is not what happened here. Instead, the bankruptcy court\n\nentered an order in the underlying bankruptcy proceedings that prevented Appellants from later\n\nasserting certain causes of action, including negligence, arising out of the HCM\u2019s conduct during\n\nthe underlying bankruptcy proceedings. The Court concludes that a court order limiting future\n\nliability against an investment advisor does not serve as the investment advisor attempting to\n\nimproperly waive its duties imposed by the IAA. Thus, the Plan\u2019s exculpation provision prohibits\n\nAppellants from asserting a negligence claim against HCM.\n\n Further, the Court notes that Appellants have cited no authority supporting the proposition\n\nthat a court order exculpating one party from future liability against the other party should be\n\nconstrued as a party attempting \u201cto waive compliance with any provision of [the IAA].\u201d See Doc. 22,\n\n\n\n -13-\n\f Case 3:23-cv-01503-B Document 39 Filed 09/10/24 Page 14 of 18 PageID 8073\n\n\n\nAppellants\u2019 Br., 34\u201335; 15 U.S.C. \u00a7 80b-15(a). Additionally, even if this was a waiver, Appellants\n\nalso fail to cite any authority for their proposition that \u00a7 80b-15 can be used to render a court order\n\nunenforceable, thus the Court rejects this argument. Accordingly, the Court affirms the bankruptcy\n\ncourt dismissing the negligence claim.\n\n Second, Appellants\u2019 argument that they asserted a claim for gross negligence fails. Appellants\n\ndid not assert a claim for gross negligence in their Complaint. Count 3 of the Complaint only alleges\n\nthat HCM was negligent\u2014it does not allege gross negligence, nor can a claim for gross negligence be\n\ninferred from the allegations in the Complaint. Doc. 18-2, R., 121\u201322. Thus, HCM was not given\n\nfair notice that Appellants were asserting a claim for gross negligence. Cf. Sims, 894 F.3d at 643.\n\n To make matters worse, Appellants did not argue before the bankruptcy court that they pled\n\na claim for gross negligence. Doc. 18-21, R., 4439\u201340. Thus, any argument about whether the\n\nComplaint asserted a claim for gross negligence was not presented to the bankruptcy court, and this\n\nCourt will not consider it on appeal. Gilani v. Wynn Las Vegas, LLC, 654 B.R. 238, 243 (E.D. Tex.\n\n2023), aff\u2019d sub nom. Matter of Gilani, No. 23-40477, 2024 WL 340822 (5th Cir. Jan. 30, 2024).\n\nD. The Court Affirms the Bankruptcy Court Dismissing the RICO Claim with Prejudice.\n\n The bankruptcy court dismissed Appellants\u2019 civil RICO claim with prejudice, Doc. 18-1, R.,\n\n39, and Appellants only appear to argue that the bankruptcy court erred by dismissing this claim\n\nwith prejudice without giving Appellants leave to amend. Doc. 22, Appellants\u2019 Br., 41\u201342. Before\n\nthe bankruptcy court ruled on the Renewed Motion to Dismiss, Appellants attempted to use Federal\n\nRule of Civil Procedure 41(a) to voluntarily dismiss their RICO claim without prejudice. Doc. 18-\n\n21, R., 4440. To the extent that Appellants argue they successfully dismissed their RICO claim under\n\n\n\n\n -14-\n\f Case 3:23-cv-01503-B Document 39 Filed 09/10/24 Page 15 of 18 PageID 8074\n\n\n\nRule 41(a) before the bankruptcy court ruled on the Renewed Motion to Dismiss, Appellants are\n\nmistaken.\n\n Rule 41(a) allows plaintiffs to unilaterally dismiss actions without prejudice if the opposing\n\nparty has not yet filed an answer or a motion for summary judgment. FED. R. CIV. P. 41(a)(1)(A)(i).\n\nThe Fifth Circuit has interpreted \u201caction\u201d to mean either a plaintiff\u2019s entire lawsuit or all of a\n\nplaintiff\u2019s claims against one defendant. Williams v. Seidenbach, 958 F.3d 341, 345 (5th Cir. 2020).\n\nHere, Appellants attempted to use Rule 41(a) to dismiss only one of their claims against HCM,\n\nwhich Rule 41(a) does not allow. See id. Thus, Appellants had not effectively dismissed their RICO\n\nclaim without prejudice before the bankruptcy court ruled on the Renewed Motion to Dismiss.\n\nE. The Bankruptcy Court Correctly Concluded It Would be Futile to Grant Leave to Amend.\n\n The Court lastly addresses Appellants\u2019 argument that they should have been granted leave\n\nto amend each of their counts. \u201cOrdinarily, this Court reviews the denial of a motion for leave to\n\nfile an amended complaint for abuse of discretion. However, where, as here, the district court\u2019s\n\ndenial of leave to amend was based solely on futility, we apply a de novo standard of review.\u201d\n\nDef. Distributed v. Platkin, 55 F.4th 486, 494 (5th Cir. 2022) (quotation and alteration omitted); see\n\nalso In re Webb, 954 F.2d at 1103\u201304. The Court concludes that it would be futile to grant Appellants\n\nleave to amend.\n\n \u201c[D]istrict courts often afford plaintiffs at least one opportunity to cure pleading deficiencies\n\nbefore dismissing a case, unless it is clear that the defects are incurable or the plaintiffs advise the\n\ncourt that they are unwilling or unable to amend in a manner that will avoid dismissal.\u201d Great Plains\n\nTr. Co. v. Morgan Stanley Dean Witter & Co., 313 F.3d 305, 329 (5th Cir. 2002). District courts give\n\nplaintiffs leave to amend their complaints \u201cwhen justice so requires.\u201d FED. R. CIV. P. 15(a)(2); see also\n\n\n -15-\n\f Case 3:23-cv-01503-B Document 39 Filed 09/10/24 Page 16 of 18 PageID 8075\n\n\n\nFED. R. BANKR. P. 7015 (incorporating Federal Rule of Civil Procedure 15 into adversary\n\nproceedings filed in bankruptcy court). This liberal standard, however, is \u201ctempered by the necessary\n\npower of a district court to manage a case.\u201d Schiller v. Physicians Res. Grp. Inc., 342 F.3d 563, 566 (5th\n\nCir. 2003).\n\n When deciding whether to grant leave to amend, district courts consider the following\n\nfactors: \u201cundue delay, bad faith or dilatory motive on the part of the movant, repeated failure to\n\ncure deficiencies by amendments previously allowed, undue prejudice to the opposing party, and\n\nfutility of amendment.\u201d Jacobsen v. Osborne, 133 F.3d 315, 318 (5th Cir. 1998) (citations and\n\nemphasis omitted). Granting leave to amend a complaint is futile if \u201cthe amended complaint would\n\nfail to state a claim upon which relief could be granted.\u201d Stripling v. Jordan Prod. Co., LLC, 234 F.3d\n\n863, 873 (5th Cir. 2000).\n\n While courts should ordinarily state their reasons for denying plaintiffs leave to amend,\n\nfailing to do so is not error when \u201cthe record reflects ample and obvious grounds for denying leave\n\nto amend.\u201d Mayeaux v. Louisiana Health Serv. & Indem. Co., 376 F.3d 420, 426 (5th Cir. 2004)\n\n(citation omitted). Appellants argue that the bankruptcy court erred by not addressing their request\n\nto amend the Complaint. Doc. 22, Appellants\u2019 Br., 43. However, the Court finds that this was not\n\nerror because it is clear from the record that the bankruptcy court denied leave to amend because it\n\nwould have been futile to do so. See Mayeaux, 376 F.3d at 426.\n\n With regards to Count 1 of the Complaint, it would have been futile to grant Appellants\n\nleave to amend as their breach of fiduciary duties claim was brought solely under a statutory\n\nprovision that does not confer a private cause of action. Thus, the Court finds it appropriate to\n\n\n\n\n -16-\n\f Case 3:23-cv-01503-B Document 39 Filed 09/10/24 Page 17 of 18 PageID 8076\n\n\n\ndismiss this claim with prejudice as no set of facts would be able to state a claim under \u00a7 206. See\n\nStripling, 234 F.3d at 873.\n\n With regards to Counts 2 and 5, the Court also finds granting leave to amend these claims\n\nwould futile because these claims are barred by judicial estoppel\u2014thus any amended complaint would\n\nlikewise fail to state a claim. See Stripling, 234 F.3d at 873.\n\n With respect to Count 3, the final reorganization Plan\u2019s exculpation provision expressly\n\nprohibits Appellants from asserting a claim for negligence\u2014thus, no set of facts could support a\n\nnegligence claim. Doc. 18-12, R., 2432\u201333. Therefore, it would likewise have been futile to grant\n\nleave to amend their negligence claim under these circumstances. See Stripling, 234 F.3d at 873.\n\n And with regards to Count 4\u2014the civil RICO claim\u2014Appellants did not propose to the\n\nbankruptcy court any new set of facts that would have shown the bankruptcy court that Appellants\n\nhad a viable claim under the RICO statute. Doc. 18-21, R., 4440\u201341; see Edionwe v. Bailey, 860 F.3d\n\n287, 294 (5th Cir. 2017) (affirming a district court denying leave to amend when the plaintiffs\n\n\u201cfail[ed] to apprise the district court of the facts that he would plead in an amended complaint, if\n\nnecessary, to cure any deficiencies\u201d (citation omitted)). Appellants simply asked the bankruptcy court\n\nfor leave to amend while saying it could plead \u201cother acts\u201d committed by HCM, but their request to\n\namend did not identify any specific facts that would address the deficiencies in the RICO claim\n\nidentified by the bankruptcy court. Doc. 18-21, R., 4441; see also Doc. 18-1, R., 35\u201339.\n\n Accordingly, the Court affirms the bankruptcy court dismissing Appellants\u2019 Complaint with\n\nprejudice.\n\n\n\n\n -17-\n\f Case 3:23-cv-01503-B Document 39 Filed 09/10/24 Page 18 of 18 PageID 8077\n\n\n\n IV.\n\n CONCLUSION\n\n For the reasons discussed above, the Court AFFIRMS the bankruptcy court\u2019s opinion in\n\nits entirety. The appeal is DISMISSED WITH PREJUDICE.\n\n SO ORDERED.\n\n SIGNED: September 10, 2024.\n\n\n\n\n JANE J. BOYLE\n UNITED STATES DISTRICT JUDGE\n\n\n\n\n -18-\n\f","ocr_status":2,"date_upload":"2024-09-11T01:18:45.851914-07:00","document_number":"39","attachment_number":null,"pacer_doc_id":"177017117864","is_available":true,"is_free_on_pacer":true,"is_sealed":null,"document_type":1,"description":"Memorandum Opinion and Order","acms_document_guid":""}],"date_created":"2024-09-10T15:12:58.368069-07:00","date_modified":"2025-07-17T12:44:12.845259-07:00","date_filed":"2024-09-10","time_filed":"16:15:34","entry_number":39,"recap_sequence_number":"2024-09-10.001","pacer_sequence_number":120,"description":"Memorandum Opinion and Order: For the reasons discussed above, the Court AFFIRMS the bankruptcy court's opinion in its entirety. The appeal is DISMISSED WITH PREJUDICE (Ordered by Judge Jane J Boyle on 9/10/2024) (ndt) (Entered: 09/10/2024)","tags":[]},{"resource_uri":"https://www.courtlistener.com/api/rest/v4/docket-entries/401892710/","id":401892710,"docket":"https://www.courtlistener.com/api/rest/v4/dockets/67564951/","recap_documents":[{"resource_uri":"https://www.courtlistener.com/api/rest/v4/recap-documents/411483441/","id":411483441,"tags":[],"absolute_url":"/docket/67564951/40/charitable-daf-fund-lp-v-highland-capital-management-lp/","date_created":"2024-09-10T15:12:58.327209-07:00","date_modified":"2025-07-17T12:44:12.920334-07:00","sha1":"","page_count":null,"file_size":null,"filepath_local":null,"filepath_ia":"","ia_upload_failure_count":null,"thumbnail":null,"thumbnail_status":0,"plain_text":"","ocr_status":null,"date_upload":null,"document_number":"40","attachment_number":null,"pacer_doc_id":"177017117880","is_available":false,"is_free_on_pacer":null,"is_sealed":null,"document_type":1,"description":"Judgment","acms_document_guid":""}],"date_created":"2024-09-10T15:12:58.311911-07:00","date_modified":"2025-07-17T12:44:12.908253-07:00","date_filed":"2024-09-10","time_filed":"16:18:10","entry_number":40,"recap_sequence_number":"2024-09-10.002","pacer_sequence_number":122,"description":"FINAL JUDGMENT: By Memorandum Opinion and Order, the Court found that the final order of Chief Bankruptcy Judge Stacey Jernigan should be affirmed. Accordingly, the order of the bankruptcy court granting Highland Capital Management, L.P.'s Renewed Motion to Dismiss is hereby AFFIRMED in all respects, and that Plaintiffs/Appellants Charitable DAF Fund, L.P.'s and CLO Holdco, Ltd.'s appeal is DISMISSED WITH PREJUDICE (Ordered by Judge Jane J Boyle on 9/10/2024) (ndt) (Entered: 09/10/2024)","tags":[]},{"resource_uri":"https://www.courtlistener.com/api/rest/v4/docket-entries/400324948/","id":400324948,"docket":"https://www.courtlistener.com/api/rest/v4/dockets/67564951/","recap_documents":[{"resource_uri":"https://www.courtlistener.com/api/rest/v4/recap-documents/409554806/","id":409554806,"tags":[],"absolute_url":"/docket/67564951/38/charitable-daf-fund-lp-v-highland-capital-management-lp/","date_created":"2024-08-23T14:20:54.774649-07:00","date_modified":"2026-09-08T21:24:07.672408-07:00","sha1":"b1e3f73168fe87c443b14d4c50d27b594cd97892","page_count":14,"file_size":775597,"filepath_local":"recap/gov.uscourts.txnd.378781/gov.uscourts.txnd.378781.38.0.pdf","filepath_ia":"https://archive.org/download/gov.uscourts.txnd.378781/gov.uscourts.txnd.378781.38.0.pdf","ia_upload_failure_count":null,"thumbnail":null,"thumbnail_status":0,"plain_text":"Case 3:23-cv-01024-L Document 20 Filed 08/23/24 Pagel of 14 14.5, AGP 194\ni\n\nIN THE UNITED STATES DISTRICT COURT |...\nFOR THE NORTHERN DISTRICT OF TEXAS | <>\nDALLAS DIVISION |\n\nAUG 23 2024\n\nSPECIAL ORDER NO. 3-354\n\nEffective August 23, 2024, the cases listed on Exhibit A to this order are transferred to\nMagistrate Judge Brian McKay and shall henceforth carry the suffix letters \u201cBW.\u201d Magistrate\nJudge McKay shall seek consent of the parties in these cases to conduct all further proceedings\nand order the entry of final judgment in accordance with 28 U.S.C. \u00a7 636(c). Ifall parties do not\nconsent, Magistrate Judge McKay shall, unless the assigned district judge otherwise orders,\n\nexercise all powers permitted by 28 U.S.C. \u00a7 636(b).\n\nSO ORDERED.\n\nAugust 23, 2024\n\nDect (_ wes\n\nDAVID C. GODBEY\nCHIEF JUDGE\n\fCase 3:23-cv-01024-L\n\nDocument 20 Filed 08/23/24\n\nPage 2o0f14 PagelD 192\n\nExhibit A\n\nCASES TO BE TRANSFERRED FROM THE DOCKET OF JUDGE RENEE H. TOLIVER TO JUDGE MCKAY\n\n1 2:24-CV-0142-BK Hasan v. Commissioner, Social Security Administration\n\n2 3:18-CV-1933-N Lexor Manufacturing LLC v. Luraco Ine, et al.\n\n3 3:19-CV-2204-X Retail Ready Career Center inc v. United States of America, et al.\n\n4 3:19-CV-2218-E Southwest Airlines Co v. Liberty Insurance Underwriters Inc\n\n5 3:19-CV-2281-K FTC v. Match Group\n\n6 3:20-CV-0656-K-BK Buzz Photo, et al. v. People's Republic of China, et al.\n\n7 3:20-CV-2935-N Carswell v. Hunt County Texas, et al.\n\n8 3:20-CV-3718-D Samurai Global LLC v. Landmark American Insurance Company\n3:21-CV-0116-B Rainier Arms LLC, et al. v. Bureau of Alcohol Tobacco Firearms and\n\n9 Explosives, et al.\n\n10 3:21-CV-0840-E TNT Quadrangle Partner, LP, et al. v. SRPF B/Quadrangle Property, LLC, et al.\n\n11 3:21-CV-1764-D Vess v. City of Dallas, et al.\n\n412 3:21-CV-2429-L Raskin, et al. v. Dallas Independent Schoo! District, et al.\n\n13 3:22-CV-0654-N Salt and Light Energy Equipment LLC v. Crigin Bancorp\n\n14 3:22-CV-0663-E United States of America v. All Funds in 199 Bank Accounts Located in India\n\n15 3:22-CV-0780-M State of Texas, et al. v. Biden, et al.\n\n16 3:22-CV-0907-5 Hilltop Holdings Inc v. AlG Specialty Insurance Company\n\n17 3:22-CV-1185-X Sentry Insurance A Mutual Company v. Morgan\n\n18 3:22-CV-1869-E Walsh v. Peterson\n\n19 3:22-CV-2118-X Securities and Exchange Commission v. Barton, et al.\n\n20 3:22-CV-2272-S Thomas v. McDonough, et al.\n\n21 3:22-CV-2597-K Pearson, et al. v. Gage\n\n22 3:22-CV-2624-B Iske v. Precision Dynamics International LLC\n\n23 3:22-CV-2763-E Boy Scouts of America v. Touch A Life Foundation Inc\n\n24 3:22-MC-0079-X-BK NiRB v. LM Carpet\n\n25 3:23-CV-0037-5 Young v. Baylor Scott & White Health\n\n26 3:23-CV-0133-B Endurance American Insurance Company v. Lloyd's Syndicate 3624\n\n27 3:23-CV-0313-S G Thomas Air LLC v. Pratt & Whitney Engine Services Inc\n\n28 3:23-CV-0342-M Ariat International Inc v. Khemchand Handicrafts Limited, et ai.\n\n29 3:23-CV-0464-D Alford v. Wonderland Montessori Academy LLC\n\n30 3:23-CV-0584-G Lee Ir v. United States\n3:23-CV-0640-D M Central Residences Condominium Association Inc v. Technology\n\n31 Insurance Company Inc\n\n32 3:23-CV-0641-L Securities and Exchange Commission v. McKnight\n\n33 3:23-CV-0811-E Alawei v. United States Citizenship and Immigration Service\n\n34 3:23-CV-0881-X GS Holistic LCC v. Sri Manakamana Inc\n\n35 3:23-CV-0910-B Brandon Architects Inc v. Olerio Home LLC\n\n36 3:23-CV-0954-X Lopez v. US Immigration and Customs Enforcement, et al.\n\n37 3:23-CV-0965-X Wilcox v. Equifax Information Services LLC\n\n38 3:23-CV-1171-K Modern Vascular of Southaven LLC, et al. v. Qlarant Integrity Solutions LLC\n\n39 3:23-CV-1198-G White v. American Economy Insurance Company\n\n40 3:23-CV-1351-X $2 Brothers LLC v. AmGuard Insurance Company\n\n41 3:23-CV-1399-G Dill v. Experian Information Solutions Inc\n\n1\n\n\fCase 3:23-cv-01024-L\n\nDocument 20 Filed 08/23/24 Page3of14 PagelD 193\n\nExhibit A\n\nCASES TO BE TRANSFERRED FROM THE DOCKET OF JUDGE RENEE H. TOLIVER TO JUDGE MCKAY\n\n42 3:23-CV-1457-5 Denison Glass & Mirror Ine v. EFCO LLC\n\n43 3:23-CV-1559-B Fitton v. Pinnacle Propane LLC\n\n44 3:23-CV-1574-E Johnson, et al. v. Dallas County Hospital District, et al.\n\n45 3:23-CV-1583-E Hernandez v. Brown\n\n46 3:23-CV-1663-D-BK Hill v. Norman, et ai.\n\n47 3:23-CV-1698-L-BK Jaffari v. Garland, et al.\n\n48 3:23-CV-1772-B Uliman v. OBM Miami\n\n49 3:23-CV-1915-B-BK Pinson v. Dallas Cnty. Sherriff\u2019s Office, et al.\n\n50 3:23-CV-1918-N Martinez v. Kroger\n3:23-CV-1945-D-BK Thornton v. Dallas County d/b/a Dallas County District Attorney's Office, et\n\n51 al.\n\n52 3:23-CV-2088-L-BK Gordon v. Kellam\n\n53 3:23-CV-2090-N-BK Tyson v. Commissioner of Social Security\n\n54 3:23-CV-2094-N-BK Humble v. Enge, et al.\n\n55 3:23-CV-2112-D King v. SeaHarbor Insurance Agency LLC\n\n56 3:23-CV-2162-5 Sealed v. Sealed\n\n57 3:23-CV-2195-X-BK Ashley v. DOL\n\n58 3:23-CV-2212-B Hunter v. Procollect Inc\n\n59 3:23-CV-2231-5 82 Glenwood Avenue LLC v. Schutze, et al.\n\n60 3:23-CV-2385-BK Fernandez v. Social Security Administration\n\n61 3:23-CV-2412-D Beasley v. Castle Credit Co Holdings LLC\n\n62 3:23-CV-2438-N-BK Blanks v, Federal Correctional Institution Seagoville, et al.\n\n63 3:23-CV-2493-K-BK Dickerson v. Conduent Commercial! Solutions LLC\n\n64 3:23-CV-2656-K-BK United States of America v. Rehab 4 Work Services LLC, et al.\n\n65 3:23-CV-2728-B Factor Mutual Insurance Company v. Southwest Pumps LLC, et al.\n\n66 3:24-CV-0013-B SW Marine v. Valentine\n\n67 3:24-CV-0072-E Katz v. Gruenberg, et al.\n\n68 3:24-CV-0104-E Tupac v. Asbury Automotive Group Inc, et al.\n\n69 3:24-CV-0112-E-BK Keys v. Connors et al.\n\n70 3:24-CV-0113-K-BK Smith v. Federai Bureau of Prisons, et al.\n\n71 3:24-CV-0148-B Samiappan v. Su\n\n72 3:24-CV-0244-N Sukin v. Experian Information Soiutions Inc, et al.\n\n73 3:24-CV-0298-G Liu v. U.S. Department of State, et ai.\n\n74 3:24-CV-0376-X Colonna, et al. v. LoanDepot.com LLC\n\n75 3:24-CV-0626-S-BK Alfano v. Allred Unit Mailroom\n\n76 3:24-CV-1060-L-BK Butler v. Lee at al\n\n77 3:24-CV-1063-D Rodriguez v. ALDI Inc\n\n78 3:24-CV-1083-K G&G Closed Circuit Events LLC v. Frida's Tacos LLC, et al.\n\n79 3:24-CV-1089-X Feit Electric Company Inc v. Elong international USA Inc, et al.\n\n80 3:24-CV-1117-K Umoru v. Walmart Stores Texas LLC\n\n81 3:24-CV-1149-X-BK Central States Health and Welfare Fund v. Contreras\n3:24-CV-1151-X Dallas Food & Beverage LLC, et al. v. United States Smail Business\n\n82 Administration, et al.\n\n83 3:24-CV-1245-B Sealed v. Sealed\n\n84 3:24-CV-1367-S Jain, et al. v. Jaddou\n\n85 3:24-CV-1416-G-BK Henderson v. Trump\n\n\fCase 3:23-cv-01024-L\n\nDocument 20 Filed 08/23/24 Page4of14 PagelD 194\n\nExhibit A\n\nCASES TO BE TRANSFERRED FROM THE DOCKET OF JUDGE RENEE H. TOLIVER TO JUDGE MCKAY\n\n86 3:24-CV-1422-5 Kearney v. Equifax Information Services LLC\n\n87 3:24-CV-1551-B Zachary v. Environmental Protection Agency\n\n88 3:24-CV-1587-S-BK Henderson v. Trump\n\n89 3:24-CV-1621-G Hamilton v. Walmart Inc\n\n90 3:24-CV-1677-X EYM Pizza of Georgia LLC, et al. v. Pizza Hut LLC, et al.\n\n91 3:24-CV-1705-D Ogboru v. Allstate Vehicle and Property Insurance Company\n92 3:24-MC-0017-E NFinity IP v. Varsity Spirit\n\n93 4:24-CV-0592-BK Johnson v. Commissioner, Social Security Administration\n\n94 5:23-CV-0259-BK Arguello v. Social Security Administration\n\n95 5:23-CV-0281-BK Murphy v. Social Security Administration\n\n\fCase 3:23-cv-01024-L\n\nDocument 20\n\nFiled 08/23/24 Page5of14\n\nPagelD 195\n\nExhibit A\n\nCASES TO BE TRANSFERRED FROM THE DOCKET OF JUDGE DAVID L. HORAN TO JUDGE MCKAY\n\n# Case No. Case Name\n1 3:16-cv-00764-N VidStream LLC v. Twitter Inc\nCapio Funding LLC v. Rural/Metro Operating\n2 3:17-cv-02713-X Company LLC et al\n3 3:19-cv-01067-K Von Colditz v. Woods et af\n4 3:20-cv-00045-D Rodriguez v. Southern Health Partners Inc et al\n5 3:20-cv-00313-N Hamilton et al v. Dallas County\n6 3:20-cv-01358-E Coleman et al v. Brozen et al\n7 3:20-cv-03636-K Blue Yonder Group inc v. Kinaxis inc et al\n8 3:21-cv-01498-B Halperin et al v. Wills et al\n9 3:22-cv-00034-X McClung et al v. Wal-Mart Stores Texas LLC et al\n10 3:22-cv-00141-N-BN Bell v. Moore\nit 3:22-cv-00525-X Fiberco, Inc. v. Acadia Insurance Company\nHighland Capital Management LP et al v. Highland Capital Management Fund\n12 3:22-cv-00789-X Advisors LP\n13 3:22-cv-00794-$ Legacy Exploration LLC v. Optimum Energy Partners LLC et al\n14 3:22-cv-01498-G-BN Timmons v. Director\n45 3:22-cy-01581-G-BN Sharper v. Director, TDCJ-CID\n416 3:22-cv-01600-G-BN Matthews v. Director, TDCJ-CID\n17 3:22-cv-01871-G-BN Turner v. O'Daniel\n18 3:22-cv-02062-X Shuler Drilling Company Inc v. Disiere Partners LLC, et al\n19 3:22-cv-02312-G-BN Mornes v, Director, TDCJ-CID\n20 3:22-cv-02403-N-BN Carey v. Director, TDCJ-CID\n21 3:22-cv-02410-G Castillo v. Walmart Inc et ai\n22 3:22-cv-02589-S-BN Minze v. Director, TOCJ-CID\n23 3:22-cv-02600-X Venzant v. Bigelow Arizona TX-282 LP et al\n24 3:22-cv-02891-N-BN Carcamo v. Director, FDCJ-CID\n25 3:23-cv-00057-K-BN Turner v. Wellpath Med Co\n26 3:23-cv-00066-B-BN Hernandez v. Director, TDCJ-CID\nTrustees of the IBEW-NECA Southwestern Health and Benefit Fund et al v. Rockey\n27 3:23-cv-00224-B Electric Inc\n28 3:23-cv-00280-K Mercury Associates Inc v. Primoris Services Corporation\n29 3:23-cv-00303-N Paige v. State Farm Lloyds\n30 3:23-cv-00337-X-BN Roccaforte v. Transunion\n31 3:23-cv-00338-N-BN Roccaforte v. Experian information Solutions Inc\n32 3:23-cv-00339-E-BN Roccaforte v. Equifax Inc\n33 3:23-cv-00355-X EDN Global Inc et al v. AT&T Mobility Services LUC et al\n34 3:23-cv-G0391-D Walker v. Hoffman et al\n35 3:23-cv-00410-E-BN Lewis v. Equifax\n36 3:23-cv-00435-B-BN Lewis v. Experian\n37 3:23-cv-00508-N Doe v. Backpage.com LLC et al\n38 3:23-cv-00547-K Bilbo v. Central Transport LLC\n39 3:23-cv-00568-B Cunningham v. State Farm Lloyds\n40 3:23-cv-00574-B Martin v. Penske Logistics LLC\n41 3:23-cv-80603-E Bridging Biosciences LLC v, Esch et al\n42 3:23-cv-00668-E-BN Spillman Jr v. Director, TDCI-CID\n43 3:23-cv-00706-E Arka Mesquite Investments LLC et al v. Philadelphia Indemnity Insurance Company\n44 3:23-cv-00736-M Powell v. Safeco Insurance Company of Indiana\n45 3:23-cv-00755-M-BN Toliver v. Director, TDCJ-CID\n46 3:23-cv-00772-E-BN Cloninger v. Director, TDC)-CID\n47 3:23-cv-00819-G White v. Wal-Mart Stores Texas LLC\n\n\fCase 3:23-cv-01024-L Document 20 Filed 08/23/24 Page6of14 PagelD 196\nExhibit A\nCASES TO BE TRANSFERRED FROM THE DOCKET OF JUDGE DAVID L. HORAN TO JUDGE MCKAY\n# Case No. Case Name\n4g 3:23-cv-00844-M Bellinger v. CureWave Lasers LLC et al\n49 3:23-cv-00852-G New York inn Inc et al v, Associated Industries Insurance Company Inc\n50 3:23-cv-00882-L GS Holistic LLC v. B Over 21 Inc et al\n51 3:23-cv-00915-B SMA v. Salesforce et al\n52 3:23-cv-00948-K Eder v. City of Burleson\n53 3:23-cv-00977-5 Brown v. Sarn\u2019s East Inc\n54 3:23-cv-01016-D Johnson v. Epsilon Data Management LLC\n55 3:23-cv-01018-X Licht v. Ling et al\n56 3:23-cv-01024-L GS Holistic LLC v. OMS Investment LLC et al\n57 3:23-cv-01039-B Jone Doe AS v. Salesforce Inc et a!\n58 3:23-cv-01089-N-BN Rountree v, FedEx Ground Package System Inc\n59 3:23-cv-01228-G Garcia v. Fiesta Mart LLC et al\n60 3:23-cv-01230-B Horton et al v. Heppner et al\n61 3:23-cv-01286-E Warner v. Equifax information Services LLC et ai\n62 3:23-cv-01301-X Dheera Limited Company v. Johnson Controls Inc et ai\n63 3:23-cv-01320-N-BN Silvers v. Director, TOCJ-CIB\n64 3:23-cv-01339-E Terri E Newkirk IRA v. Kelly e\u00a2 al\n65 3:23-cv-01345-L Russell v. Kroger Texas, LP\n66 3:23-cv-01356-L-BN Perez v. Specialized Loan Servicing LLC et al\n6&7 3:23-cv-01366-N Husinger v. Smart Start Real estate Corporation\n68 3:23-cv-01376-X Harris v. Papa Texas LLC\n69 3:23-cv-01468-D Nieves v. Uber Technologies Inc et al\n70 3:23-cv-01484-L Red Barn Candle Company ELC v. Bath & Body Works Brand Management Inc\n7t 3:23-cv-01497-L Rittman v. Amguard Insurance Company\n72 3:23-cv-01502-G-BN Cook v. Costco Wholesale Corporation\n73 3:23-cv-01503-B Charitable DAF Fund LP et al v. Highland Capital Management LP\n74 3:23-cv-01517-N Bahamas Laguna Azure LLC v. City of Royse City, Texas\n75 3:23-cv-01525-X Biovant LLC v. BTEAG LLC et al\n76 3:23-cv-01548-5 Cobbs v. Baylor Scott & White\n77 3:23-cv-01557-D Clark v. Wyndham Worldwide, Inc\n78 3:23-cv-01561-K Erwin et al v. Metalcraft of Mayville Inc\n79 3:23-cv-01565-S-BN Fields v. Kelley\n80 3:23-cv-01617-X Holmes v. Equifax information Services LLC et al\n81 3:23-cv-01621-5 Niter et al v. Brown et al\n82 3:23-cv-01669-B Strike 3 Holdings LLC v. Doe\n83 3:23-cv-01674-B Brookfield Property Retail Holdings LLC et ai v. Dillard Texas Central LLC\n84 3:23-cv-01675-L Van-Zandt Reiss et al v. The Bank of New York Melon\n&5 3:23-cv-01679-E Harris v. HireRight LLC\n86 3:23-cv-01775-X Palmer v. Wal-Mart Stores Inc\n87 3:23-cv-01791-L SPBL-1119 LLC v. Arciterra Strategic Retail Advisor LLC et al\n8&8 3:23-cv-01793-L LSM Blue Sky LLC v. AT Olathe Outlot 5 LLC et al\n89 3:23-cv-01802-E Megehee v. Pallida LLC\n90 3:23-cv-01805-E McConnell v. Applied Digital Corporation et al\n91 3:23-cv-01832-8 Doe v. Dallas Area Rapid Transit et al\n92 3:23-cv-01870-K GS Holistic LLC v. GNS Sons Inc\n93 3:23-cv-01889-S Velis v. Bangert et al\n94 3:23-cv-01910-E Hagans v. Child Care Group\n95 3:23-cv-01912-S Lessig v. Fiesta Mart LLC\n96 3:23-cv-01937-N Kustom Signals Inc v. Applied Concepts Inc\n97 3:23-cv-01972-L Owens v. Dallas Country Club\n98 3:23-cv-01973-K-BN Bohemond v. City of Dallas TX\n99 3:23-cv-01998-B Harland v. Workforce outsource Services Inc\n\n5\n\fExhibit A\n\nCase 3:23-cv-01024-L Document 20 Filed 08/23/24 Page7of14 PagelD 197\nCASES TO BE TRANSFERRED FROM THE DOCKET OF JUDGE DAVID L. HORAN TO JUDGE MCKAY\n\n# Case No. Case Name\n\n100 3:23-cv-02009-G-BN Hunsinger v. Atmos Energy Corporation\n\n101 3:23-cv-02010-B Johnson et al v. Crosby Elementary School et al\n3:23-cv-02011-B\n\n102 Sample v. SLI Enterprises Inc et al\n3:23-cv-02023-B\n\n103 Promed LLC v, Quintairos Prieto Wood & Boyer PA\n3:23-cv-02050-X\n\n104 Taste of Chengdu LLC v. Feng\n3:23-cv-G2070-G6\n\n105 Summers v. Longbrake et al\n3:23-cv-02071-E\n\n106 Hunter Mountain Investment Trust et al v. Highland Capital Management LP et al\n3:23-cv-02097-X\n\n107 Holcamb v. Monitronics International\n3:23-cv-02110-B\n\n108 Consumer Data Partners, LP et al v. Agentra LLC et al\n3:23-cv-02126-5\n\n109 Mosure et al. v. Southwest Airlines, Co.\n3:23-cv-02143-N\n\n110 Dillard v. Gaines Investment Trust et al\n3:23-cv-02148-K-BN\n\n411 Booth v. US Bank Trust NA\n3:23-ev-02155-L\n\n412 cici Enterprises LP v. HSB Specialty Insurance Company\n3:23-cv-02158-D\n\n113 Wilson v. Korth Direct Mortgage et al\n3:23-cv-02203-E\n\n114 Warehouse Solutions Inc v. Plus Veterans, LLC\n3:23-cv-02214-$\n\n115 Big Games Management LLC v. Bespoke Piush LLC et al\n3:23-cv-02232-B\n\n116 Campbell v. Methodist Hospitais of Dallas et al\n3:23-cv-02238-E\n\n117 Cameron v. QT South LLC et al\n3:23-cv-02243-E\n\n118 Paez v. Childrens Health System of Texas\n3:23-cv-02284-G\n\n119 Stanley v. Wal-Mart Stores Texas LLC\n3:23-cv-02286-X\n\n120 Brandon Wade Photography LLC v. Killian Design LLC\n3:23-cv-02292-L\n\n121 Lloyd v. Athena Condominiums Co-Owners Association\n3:23-cv-02294-B-BN\n\n422 Andrews v. York et af\n3:23-cv-02307-G\n\n123 Lee v. Equifax Information Services LLC et al\n3:23-cv-02367-K\n\n124 City of Dallas v. Triple D Gear, LLC\n3:23-cv-02387-L\n\n125 Nasrallah v. Scottsdale Insurance Company\n\n\fCase 3:23-cv-01024-L Document 20 Filed 08/23/24 Page8of14 PagelD 198\n\nExhibit A\nCASES TO BE TRANSFERRED FROM THE DOCKET OF JUDGE DAVID L. HORAN TO JUDGE MCKAY\n# Case No. Case Name\n3:23-cv-02404-L\n126 Lilium GVP LLC v. Transportation Insurance Company et al\n3:23-cv-02421-X\n127 Principal Life Insurance Company v. Roque et al\n3:23-cv-02457-B-BN\n428 Young v. United Parcel Service Inc (Ohio)\n3:23-cv-02494-\u00a7\n4129 Hossain v. The Boeing Company\n3:23-cv-02504-K\n130 DAV Sub Inc v. QligSOFT Inc\n3:23-cv-02531-E\n131 Dawson v. Union Pacific Railroad\n3:23-cv-02532-E-BN\n132 Randle v. Brown et al\n3:23-cv-02539-X\n133 Bowers v. Uplift Education\n3:23-cv-02547-E\n134 Session v. Sanofi US Services Inc. et al\n3:23-cv-02594-E\n135 Verna IP Holdings LLC v. Dais Inc\n\n3:23-cv-02624-N\n\n136 Doe v. International Association of Eating Disorder Professionals Foundation Inc et al\n3:23-cv-02633-S\n137 Motton v. Wal-Mart Stores Texas, LLC\n3:23-cv-02670-E\n138 Samadian v. Allstate Vehicle and Property Insurance Company\n3:23-cv-02671-X\n139 APOD Group ELC v. Glen Lakes Homeowners Association Inc et al\n3:23-cv-02673-G\n140 Elliott v. Gonzalez et al\n3:23-cv-02708-B\n144 Dishmon v. Newkirk Logistics Inc\n3:23-cv-02725-D\n142 Pradia v. The City of Rhome et al\n3:23-cv-02737-N\n143 Rollins-Booker v. Senture LLC\n3:23-cv-02770-S\n144 Camacho v. Sajeda Inc et al\n3:23-cv-02795-E\n145 Coil v. Experian Information Solutions Inc et al\n3:23-cv-02807-K\n146 Wells Fargo Bank NA v. Williams et al\n3:23-cv-02827-G-BN\n447 Moka v. Huntex Properties LLC et al\n3:23-cv-02830-X\n148 Mesa Digital LLC v. One Plus USA Corp\n3:23-cv-02834-E\n149 Canada, Jr. et al v. Sherman\n3:23-cv-02839-E\n150 Accurate Metal Stamping LLC v. Chubb Indemnity Insurance Company et al\n\n\fCase 3:23-cv-01024-L Document 20 Filed 08/23/24 PageQ9of14 PagelD 199\n\nExhibit A\nCASES TO BE TRANSFERRED FROM THE DOCKET OF JUDGE DAVID L. HORAN TO JUDGE MCKAY\n\n# Case No. Case Name\n3:24-cv-00002-L\n\n151 McLaughlin et al v. Family Assets Management LLC\n3:24-cv-00004-N\n\n152 Hill v. Garcia et af\n3:24-cv-00631-L\n\n153 Great American Insurance v, Truckmax Inc\n3:24-cv-00098-L\n\nLeon Capital Group LEC et al v. Princeton Excess & Surplus Lines Insurance Company\n\n154 et al\n3:24-cv-00122-B\n\n455 Slate/Sefect Inc v. Martin Marietta Materials Inc et al\n3:24-cv-00191-E\n\n156 Crum & Forster Insurance Company v. Shreno Limited\n3:24-cv-00255-E\n\n157 Blacknall v. Allata LLC et al\n3:24-cv-00285-G-BN\n\n158 Davis et al v. Wells Fargo Bank NA et ai\n3:24-cv-00331-5\n\n159 Tafolla v. Wacker et al\n3:24-cv-00341-S\n\n160 Forsythe et al v. Equifax Information Services LLC et ai\n3:24-cv-00347-K\n\n161 Homesteaders Life Company v. Williams\n3:24-cv-00361-E\n\n162 Kendrick v. QuickTrip Corporation\n3:24-cv-00382-B\n\n463 US Bank National Association v. Malloy\n3:24-cv-00388-E\n\n164 Elioznde v. Randalls Food and Drug LP\n3:24-cv-00417-X\n\n165 Strike 3 Holdings, LLC v. Doe\n3:24-cv-00434-L\n\n166 G&G Closed Circuit Events LLC v. Aguifar\n3:24-cv-00498-K\n\n167 Highland Employee Retention Assets LLC v. Dondero et al\n3:24-cv-00528-B\n\n168 Texas State Board of Dental Examiners v. Doe\n3:24-cv-00544-D-BN\n\n169 Rector v. Director, TDC)-CID\n3:24-cv-00568-N\n\n170 Strong v. Bank of America Corporation et al\n3:24-cv-00569-5\n\ni71 Haag Engineering Co v. Ellis et al\n3:24-cv-00647-L\n\n172 Languasco et al v. Blair Logistics LLC\n3:24-cv-00658-5\n\n173 Gardner v. The Lincoin National Life Insurance Company\n3:24-cv-00691-D\n\n174 Miller v. Wal-Mart Stores East LP\n3:24-ev-00702-L\n\n175 Birrueta v. State Farm Lloyds\n\n\fCase 3:23-cv-01024-L Document 20 Filed 08/23/24 Page10o0f14 PagelD 200\n\nExhibit A\n\nCASES TO BE TRANSFERRED FROM THE DOCKET OF JUDGE DAVID L. HORAN TO JUDGE MCKAY\n\n# Case No. Case Name\n3:24-cv-00728-X-BN\n\n176 Said v. EAN Holdings LLC et al\n3:24-cv-00791-E\n\n177 Wilson v. British Airways PLC\n3:24-cv-00796-L\n\n178 Sanchez v. Caliber Holdings LLC\n\n179 3:24-cv-00798-E King v. Wal-Mart Stores Texas, LLC\n3:24-cv-00809-S\n\n180 Kenney et al v. Dallas County Texas\n3:24-cv-00817-B\n\n181 Children's Health System of Texas v. UnitedHeaithcare Insurance Company\n3:24-cv-00892-B\n\n182 Toombs et al v. Kaufman County, Texas et al\n3:24-cv-00905-E-BN\n\n183 Rass v. Texas Instruments\n3:24-cv-00909-K-BN\n\n184 Bryant v. EverBank NA\n3:24-cv-00971-X\n\n185 Morgan v. Fundamental Clinical And Operational Services LLC\n3:24-cv-01020-X\n\n186 The Shore Firm LLP v. Videoshare LLC\n\n187 3:24-cv-01051-5 Gilliard v. Southwest Airlines Federal Credit Union\n3:24-ev-01075-N\n\n188 Ayangbile et al v. Children's Health Services of Texas\n3:24-cyv-011329-X\n\n189 Ray v. Experian Information Solutions Inc et al\n3:24-cv-01175-S-BN\n\n190 Romero et al v. US Bank National Association\n3:24-cv-01198-L\n\n191 Nautilus Hyosung America Inc v. BMO Bank NA et al\n3:24-cv-01209-D\n\n192 American Alliance for Equal Rights v. Southwest Airlines Co\n3:24-cv-01233-5\n\n193 Smith v. Montez et al\n3:24-cv-01262-D\n\n194 Brandon Wade Photography, LLC v. OTC Bar LLC\n3:24-cv-01288-D-BN\n\n195 Williams v. Richardson Independent School District\n3:24-cv-01319-G\n\n196 Daniels-Mock v. Taxir Logistics Inc et al\n3:24-cv-01326-K-BN\n\n197 Wickman v. Navarro County Jail\n3:24-cv-01339-B\n\n198 Travers v. Allstate Vehicle and Property insurance Company\n3:24-cv-01358-E\n\n199 Joe Hand Promotions inc v. Carbajal et at\n3:24-cv-01370-D-BN\n\n200 Council v. Draftkings et al\n3:24-cv-01397-K\n\n201 PacSec3 LLC v. RSA Federal LLC\n3:24-cv-01413-X\n\n202 Guillen et al v. U-Haul Company of Texas et al\n\n\fCase 3:23-cv-01024-L Document 20 Filed 08/23/24 Pagei1lof14 PagelD 201\n\nExhibit A\nCASES TO BE TRANSFERRED FROM THE DOCKET OF JUDGE DAVID L. HORAN TO JUDGE MCKAY\n# Case No. Case Name\n203 3:24-cv-01418-L Wilson v. Frontier Communications Parent, Inc.\n3:24-cv-O1447-E\n204 Akhmedov v. TA Operating LLC\n\n3:24-cv-01461-K\n\n205 Moreno et al v. Alan Halperin, In his capacity as Trustee of the GFES Liquidation Trust\n3:24-cv-01479-$\n\n206 NexPoint Real Estate Partners LLC et al v. Highland Capital Management LP\n3:24-cv-01483-G\n\n207 Amazon.com Inc et al v. Baik et al\n3:24-cv-01519-B-BN\n\n208 Robinson-Durham v. Navarro County Jail\n3:24-cv-01531-X\n\n209 Dugaboy Investment Trust et al v. Highland Capital Management LP et al\n3:24-cv-01541-B\n\n210 Sanchez et ai v. Schneider National Carriers Inc et al\n3:24-cv-01554-D\n\n211 Hernandez v. Bishop Cider Company LLC et al\n\n3:24-cv-01563-D\nWLands Limited Partnership LP et al v. Founders Plaza Nursing & Rehabilitation\n\n212 Partners LLC et al\n\n213 3:24-cv-01603-X Strike 3 Holdings LLC v. Doe\n\n214 3:24-cv-01610-E Strike 3 Holdings LLC v. Doe\n\n215 3:24-cv-01641-D Elizondo v. Equifax Information Services LLC et al\n216 3:24-cv-01642-X Aurzada et af v. JPMorgan Chase Bank NA et al\n217 3:24-cv-01646-G-BN Sharman v. H&R Block et al\n\n218 3:24-cv-01647-N Rodriguez v. Home Depot USA inc\n\n219 3:24-cv-01684-L Criss v. Grocery Delivery E-Services USA Inc\n220 3:24-cv-01685-G Harris v. Equifax Information Services LLC et al\n221 3:24-cv-01692-N Ricker v. Equifax Information Services LLC et al\n222 3:24-cv-01711-D Mitchel v. Pitre et al\n\n223 3:24-cv-01717-K Ayala v. Chedraui USA Inc\n\n224 3:24-cv-01716-L Hutchinson v. Sunrun Inc\n\n225 3:24-cv-01720-K Miller v. Xpress Global Systems LLC\n\n226 S:24-cv-01743-L Collier v. Carter\n\n227 3:24-cv-O1768-5 Bosman v. Amazon.com inc et al\n\n3:24-cv-01786-L\n\n228 Hunter Mountain Investment Trust et al v. Highland Capital Management LP et al\n3:24-cv-01787-L\n\n229 Hunter Mountain Investment Trust et al v. Highland Capital Management LP et al\n\n230 3:24-cv-01796-B Larsen v. Apt All Points Transportation LLC et al\n\n231 3:24-cv-01811-D McAfee v. Lear Corporation\n\n232 3:24-cv-01821-K Ryan LLC v, Radin\n\n233 3:24-cv-01839-E Forstey v. Jordan et al\n\n234 3:24-cv-01873-X Strike 3 Holdings LLC v. Doe\n\n235 3:24-cv-01882-X Strike 3 Holdings LLC v. Doe\n\n236 3:24-cv-01908-D Hibdon v. Atrium Hospitality LP\n3:24-cv-01912-E\n\n237 Hunter Mountain Investment Trust v. Highland Capital Management LP et al\n\n10\n\fCase 3:23-cv-01024-L\n\nDocument 20 Filed 08/23/24 Page12of14 PagelD 202\n\nExhibit A\n\nCASES TO BE TRANSFERRED FROM THE DOCKET OF JUDGE DAVID L. HORAN TO JUDGE MCKAY\n# Case No. Case Name\n238 3:24-cv-01949-X Alentisar Trading Company v. Eyondi et al\n239 3:24-cv-01967-S-BN Willtams v. Richardson ISD\n\n41\n\fCase 3:23-cv-01024-L Document 20 Filed 08/23/24 Page130f14 PagelD 203\nExhibit A\n\nCASES TO BE TRANSFERRED FROM THE DOCKET OF JUDGE REBECCA RUTHERFORD\nTO JUDGE MCKAY\n\n1 3:22-cv-02887-L-BT Murphy v. Director\n\n2 3:23-cv-00316-B-BT Marcus v. Director\n\n3 3:23-cv-00978-D-BT Walton v. USA\n\n4 3:23-cv-02449-D-BT Manzo v. Federal Bureau of Prisons\n\n5 3:23-cv-2677-S-BT Jackson v. Smali Business Administration et al\n\n6 3:24-cv-00175-S-BT Gonzales v. Collier\n\n7 3:24-cv-00661-B-BT Hammons v. Tradeline Motorcars et al\n\n8 3:24-cv-00637-S-BT Humes v. McDonald's Walmart #5416-945\n\n9 3:24-cv-01708-X-BT Traeger v. Jones et al\n\n10 3:23-cv-00315-X-BT Duhon v. Metropolitan Tower Life Insurance Company et al\n\n11 3:23-cv-02194-8-BT Walters v. Garland\n\n12 3:23-cv-02157-L-BT United States of America v. Morgan et al\n3:24-cv-00277-L National Association of Blind Merchants et al v. The Army & Air Force Exchange\n\n13 Service et al\n\n14 3:24-cv-00273-N-BT De Pute v. United States of America et al\n\n15 3:24-cv-00703-B-BT Freeman v. USA et al\n\n16 3:23-cv-01994-S-BT Davis v. City of Mclendon Chisholm et al\n\n17 3:24-cv-00731-L Crenshaw v. Anderson et al\n\n18 3:24-mc-00034-B-BT Calhoun v. United States\n\n19 3:23-cv-02682-5-BT Phoenix Bulk Carriers LLC v. CAL-IXA Aggregates LLC\n\n20 3:24-cv-01590-N-BT Jackson v. United States Postal Service et al\n\n27 3:24-cv-01759-B-BT Woods v. Delta Air Lines inc\n\n22 2:23-cv-00171-BT Row v. Commissioner\n\n23 1:24-cv-00083-BT Gonzales v. Commissioner\n\n24 5:23-cv-00293-BT Mims v. Commissioner\n\n25 3:14-cv-02970-X Clapper et al v. American Realty Investors Inc et al\n\n26 3:20-cv-01276-N Kunze et al v. Baylor Scott & White Health et al\n\n27 3:20-cv-01364-E Malbrew et al v. A+ Charter Schools\n\n28 3:21-cv-02131-K Bernstein v. Maximus Federal Services Inc\n\n29 3:22-cv-00876-N Grimmett et al v. Coleman et al\n\n30 3:22-cv-02116-X Black v. UNUM Life Insurance Company of America\n\n31 3:22-cv-02182-M Range! de Oliveira v. Bierman\n\n32 3:22-cv-02184-B Mid-Continent Casualty Company v. Vibrant Builders et ai\n\n33 3:23-cv-00271-K Green v. USA\n\n34 3:23-cv-01340-L Perez v. Experian Information Solutions Inc\n\n35 3:23-cv-01412-N Aravamuthan v. US Citizenship & immigration Service et al\n\n36 3:23-cv-01416-B8 Landmark American Insurance Company v. Richland Trace Owners Association Inc\n\n37 3:23-cv-01441-N Thompson v. McGehee et al\n\n38 3:23-cv-01490-S Norwood v. Dallas County Hospital District\n\n39 3:23-cv-01494-N Mathew v. Santander Consumer USA Inc\n\n40 3:23-cv-02051-N Shrestha et al v. USCIS et al\n\n41 3:23-cv-02089-E Nationstar Mortgage LLC v. ACI Payments Inc et al\n\n42 3:22-cv-01529-N Oliver v. Wal-Mart Stores Texas LLC et al\n\n12\n\n\fCase 3:23-cv-01024-L Document 20 Filed 08/23/24 Page14o0f14 PagelD 204\n\nExhibit A\n\nCASES TO BE TRANSFERRED FROM THE DOCKET OF JUDGE REBECCA RUTHERFORD\nTO JUDGE MCKAY\n\n43 3:23-cv-00045-E Mauricio et al v. US Postal Service\n\n44 3:23-cv-01168-N-BT United States of America v. $39,900 in US Currency\n45 3:23-cv-02146-D Securities and Exchange Commission v. Verges et al\n\n46 3:23-cv-02222-K Heard et al v. State Farm Lloyds\n\n47 3:23-cv-02591-D Oldham v. State Farm Lloyds\n\n48 3:23-cv-02621-8 Sealed v. Sealed\n\n49 3:23-cv-02701-\u00a3 Pertrorock Mineral Holdings, LLC et al v. Minerva Resources, LLC et al\n50 3:23-cv-02271-S Hayes v. City of Dallas et al\n\n51 3:23-cv-02338-K Smith v. USA\n\n52 3:23-cv-02462-D Botone et al v. Unitrin Safeguard Insurance Company\n\n53 3:24-cv-00014-D Hardrick v. Wells Fargo Bank National Association et al\n54 3:24-cv-00201-K Ware et al v. Meridian Security Insurance Company\n\n55 3:24-cv-00204-X United States of America v. $45,000.00 in US Currency\n56 3:24-cv-00220-B Bayazeed v. Robinson et al\n\n57 3:24-cv-00664-X VDPP, LLC v. Mercedes-Benz USA, LLC\n\n58 3:24-cv-00700-X-BT Garrison v. John Doe et al\n\n59 3:24-cv-00943-E M&H Metal Specialties Inc v. Sheet Metal Workers Nat'l Pension Fd\n60 3:24-cv-00944-5 USA v. Various Amounts of Funds Seized\n\n61 3:24-cv-01169-B Nieto v. USA\n\n62 3:24-cv-01484-S5 Antunez-Martinez v. Mayorkas\n\n63 3:24-cv-01525-K Gonzales Miranda et al v. Jaddou\n\n64 3:24-cv-01674-E-BT Turner v. Equal Employment Opportunity Comm et al\n65 3:24-cv-01676-S Bibars v. Jaddou et al\n\n66 3:24-cv-01795-S Valtrus Innovations Ltd et al v. Google LLC\n\n67 3:24-cv-01902-K-BT Allen-Straight v. Director-TBC)\n\n68 3:24-cv-02028-X-BT Lockwood v. Chilcoat et al\n\n69 3:24-cv-02114-K-BT Santana v. Cantu et al\n\n70 3:24-cv-02127-X-BT Stancu v. Equal Employment Cppertunity Commission\n71 3:24-cy-02132-S-BT Damm v. Dallas County Jail\n\n72 3:24-cv-02143-B-BT Jalloul v. USA\n\n73 3:24-cv-02144-5-BT Jeffery v. NLN\n\n74 4:24-cv-00678-B8T Bolden v. Commissioner\n\n13\n","ocr_status":1,"date_upload":"2026-08-31T17:49:35.867657-07:00","document_number":"38","attachment_number":null,"pacer_doc_id":"177017081242","is_available":true,"is_free_on_pacer":null,"is_sealed":null,"document_type":1,"description":"Order Reassigning Case","acms_document_guid":""}],"date_created":"2024-08-23T14:20:54.662650-07:00","date_modified":"2025-07-17T12:44:12.804996-07:00","date_filed":"2024-08-23","time_filed":"15:30:33","entry_number":38,"recap_sequence_number":"2024-08-23.001","pacer_sequence_number":118,"description":"Special Order No. 3-354: Effective August 23, 2024, the cases listed on Exhibit A to this order are transferred to Magistrate Judge Brian McKay and shall henceforth carry the suffix letters \"BW.\" This case has been reassigned pursuant to Special Order No. 3-354. (The clerk has mailed a copy to all non-ECF users.) (Ordered by Chief Judge David C. Godbey on 8/23/2024) (twd) (Entered: 08/23/2024)","tags":[]},{"resource_uri":"https://www.courtlistener.com/api/rest/v4/docket-entries/376272670/","id":376272670,"docket":"https://www.courtlistener.com/api/rest/v4/dockets/67564951/","recap_documents":[{"resource_uri":"https://www.courtlistener.com/api/rest/v4/recap-documents/383896083/","id":383896083,"tags":[],"absolute_url":"/docket/67564951/33/charitable-daf-fund-lp-v-highland-capital-management-lp/","date_created":"2024-01-22T12:04:53.322188-08:00","date_modified":"2024-10-18T11:27:38.406358-07:00","sha1":"7fca6e0ffbe7883e1d1af67d91a0f62b326b47e0","page_count":4,"file_size":218500,"filepath_local":"recap/gov.uscourts.txnd.378781/gov.uscourts.txnd.378781.33.0.pdf","filepath_ia":"https://archive.org/download/gov.uscourts.txnd.378781/gov.uscourts.txnd.378781.33.0.pdf","ia_upload_failure_count":null,"thumbnail":null,"thumbnail_status":0,"plain_text":" Case 3:23-cv-01503-B Document 33 Filed 01/22/24 Page 1 of 4 PageID 8000\n\n\n\n IN THE UNITED STATES DISTRICT COURT\n FOR THE NORTHERN DISTRICT OF TEXAS\n DALLAS DIVISION\n\n )\nIn re: )\n ) Chapter 11\n 1\nHIGHLAND CAPITAL MANAGEMENT, L.P., )\n ) Case No. 19-34054 (SGJ)\n Reorganized Debtor. )\n )\n )\nIn re: )\n )\nTHE CHARITABLE DAF FUND, L.P., and CLO )\nHOLDCO, LTD., directly and derivatively, )\n )\n Appellants, )\n ) Case No: 3:23-cv-01503-B\nv. )\n )\nHIGHLAND CAPITAL MANAGEMENT, L.P., )\nHIGHLAND HCF ADVISOR, LTD., and HIGHLAND )\nCLO FUNDING, LTD., nominally, )\n )\n )\n Appellee. )\n )\n\n CERTIFICATE OF SERVICE\n\n I, Patrick Leathem, depose and say that I am employed by Kurtzman Carson Consultants\nLLC (\u201cKCC\u201d), the claims and noticing agent for the Reorganized Debtor in the above-captioned\ncase.\n\n On December 22, 2023, at my direction and under my supervision, employees of KCC\ncaused the following document to be served via Electronic Mail upon the service list attached\nhereto as Exhibit A:\n\n \u2022 Appellee's Certificate of Interested Persons Pursuant to Local Bankruptcy\n Rule 8012.1 [Docket No. 26]\n\n \u2022 Appellee's Brief [Docket No. 27]\n1\n The Reorganized Debtor\u2019s last four digits of its taxpayer identification number are (8357). The headquarters and\nservice address for the above-captioned Reorganized Debtor is 100 Crescent Court, Suite 1850, Dallas, TX 75201.\n\f Case 3:23-cv-01503-B Document 33 Filed 01/22/24 Page 2 of 4 PageID 8001\n\n\n\n \u2022 Appendix in Support of Appellee's Brief [Docket No. 28]\n\nDated: January 22, 2024\n /s/ Patrick Leathem\n Patrick Leathem\n KCC\n 222 N Pacific Coast Highway, Suite 300\n El Segundo, CA 90245\n\n\n\n\n 2\n\fCase 3:23-cv-01503-B Document 33 Filed 01/22/24 Page 3 of 4 PageID 8002\n\n\n EXHIBIT A\n\f Case 3:23-cv-01503-B Document 33Exhibit\n FiledA01/22/24 Page 4 of 4 PageID 8003\n Appeals Service List\n Served via Email\n\n\n Description CreditorName CreditorNoticeName Email\n\nFinancial Advisor to Official Committee\nof Unsecured Creditors FTI Consulting Earnestiena Cheng Earnestiena.Cheng@fticonsulting.com\n Hayward & Associates Melissa S. Hayward, Zachery MHayward@HaywardFirm.com;\nCounsel for the Debtor PLLC Z. Annable ZAnnable@HaywardFirm.com\n rpachulski@pszjlaw.com;\n jpomerantz@pszjlaw.com;\n Richard M. Pachulski, Jeffrey ikharasch@pszjlaw.com;\n N. Pomerantz, Ira D. Kharasch, joneill@pszjlaw.com;\n James E. O\u2019Neill, Robert J. rfeinstein@pszjlaw.com;\n Pachulski Stang Ziehl & Feinstein, John A. Morris, jmorris@pszjlaw.com;\nCounsel for the Debtor Jones LLP Gregory V. Demo gdemo@pszjlaw.com\n\nCounsel for The Charitable DAF Fund,\nL.P., CLO Holdco, Ltd., Mark Patrick,\nSbaiti & Company, PLLC, Mazin A.\nSbaiti, Jonathan Bridges, and , PCMG Mazin A Sbaiti, Jonathan MAS@SbaitiLaw.com;\nTrading Partners XXIII, L.P Sbaiti & Company PLLC Bridges, Kevin N Colquitt jeb@sbaitilaw.com\n mclemente@sidley.com;\n Matthew Clemente, Alyssa alyssa.russell@sidley.com;\nCounsel for Official Committee of Russell, Elliot A. Bromagen, ebromagen@sidley.com;\nUnsecured Creditors Sidley Austin LLP Dennis M. Twomey dtwomey@sidley.com\nCounsel for Official Committee of preid@sidley.com;\nUnsecured Creditors, Marc. S. Penny P. Reid, Paige Holden pmontgomery@sidley.com;\nKirschner, as Litigation Trustee of the Montgomery, Juliana Hoffman, jhoffman@sidley.com;\nHighland Litigation Sub-Trust Sidley Austin LLP Chandler M. Rognes crognes@sidley.com\n\nBankruptcy Judge US Bankruptcy Court Hon. Stacey G Jernigan sgj_settings@txnb.uscourts.gov\n\n\n\n\nHighland Capital Management, L.P.\nCase No. 19-34054 Page 1 of 1\n\f","ocr_status":2,"date_upload":"2024-01-22T12:05:39.669371-08:00","document_number":"33","attachment_number":null,"pacer_doc_id":"177016562367","is_available":true,"is_free_on_pacer":null,"is_sealed":null,"document_type":1,"description":"","acms_document_guid":""}],"date_created":"2024-01-22T12:04:46.056713-08:00","date_modified":"2024-10-18T11:27:38.392598-07:00","date_filed":"2024-01-22","time_filed":null,"entry_number":33,"recap_sequence_number":"2024-01-22.001","pacer_sequence_number":102,"description":"CERTIFICATE OF SERVICE by Highland Capital Management LP re 26 Cert. Of Interested Persons/Disclosure Statement, 28 Appendix in Support, 27 Appellee's Brief (Annable, Zachery) (Entered: 01/22/2024)","tags":[]},{"resource_uri":"https://www.courtlistener.com/api/rest/v4/docket-entries/375705979/","id":375705979,"docket":"https://www.courtlistener.com/api/rest/v4/dockets/67564951/","recap_documents":[{"resource_uri":"https://www.courtlistener.com/api/rest/v4/recap-documents/383316747/","id":383316747,"tags":[],"absolute_url":"/docket/67564951/32/charitable-daf-fund-lp-v-highland-capital-management-lp/","date_created":"2024-01-16T08:22:23.280002-08:00","date_modified":"2024-10-18T11:27:38.376772-07:00","sha1":"b628c6308b19750883a5974688d0d9758d6346ae","page_count":32,"file_size":668418,"filepath_local":"recap/gov.uscourts.txnd.378781/gov.uscourts.txnd.378781.32.0.pdf","filepath_ia":"https://archive.org/download/gov.uscourts.txnd.378781/gov.uscourts.txnd.378781.32.0.pdf","ia_upload_failure_count":null,"thumbnail":null,"thumbnail_status":0,"plain_text":"Case 3:23-cv-01503-B Document 32 Filed 01/12/24 Page 1 of 32 PageID 7968\n\n\n\n CIVIL ACTION NO. 3:23-CV-1503-B\n\n IN THE UNITED STATES DISTRICT COURT\n FOR THE NORTHERN DISTRICT OF TEXAS\n DALLAS DIVISION\n\n In re: HIGHLAND CAPITAL MANAGEMENT, L.P.,\n Reorganized Debtor.\n__________________________________________________________________\n\n CHARITABLE DAF FUND, L.P.\n and CLO HOLDCO, LTD.,\n\n Appellants,\n v.\n\n HIGHLAND CAPITAL MANAGEMENT, L.P., et al.\n\n Appellee.\n__________________________________________________________________\n\n On Appeal from the United States Bankruptcy Court for the Northern District\n of Texas, Adversary No. 21-03067-sg, Hon. Stacey G.C. Jernigan, Presiding\n\n\n REPLY BRIEF OF APPELLANTS THE CHARITABLE DAF\n FUND, L.P. AND CLO HOLDCO, LTD.\n\n\n Mazin A. Sbaiti\n Jonathan Bridges\n Sbaiti & Company PLLC\n 2200 Ross Avenue \u2013 Suite 4900W\n Dallas, TX 75201\n T: (214) 432-2899\n F: (214) 853-4367\n\n Counsel for Appellants\n\f Case 3:23-cv-01503-B Document 32 Filed 01/12/24 Page 2 of 32 PageID 7969\n\n\n\n TABLE OF CONTENTS\n\nTABLE OF CONTENTS ......................................................................................... i\n\nTABLE OF AUTHORITIES ................................................................................... ii\n\nI. INTRODUCTION ........................................................................................ 1\n\nII. ARGUMENTS & AUTHORITIES .............................................................. 2\n\n A. Breach of Fiduciary Duty ................................................................... 2\n\n 1. Violations of the Advisers Act \u00a7 206 Give Rise to An\n Equitable Claim Under IAA \u00a7 215 .......................................... 2\n\n a. Section 206(4) Is Not Limited to Direct Advisees,\n which the IAA Defines as \u201cClients\u201d .............................. 3\n\n b. The NexPoint Decision Does Not Help Defendant ....... 5\n\n 2. Violations of the Advisers Act Give Rise to a Common\n Law Breach of Fiduciary Duty Claim...................................... 8\n\n 3. Plaintiffs Still Have Not Pled a 10b-5 Claim ......................... 14\n\n 4. Defendant\u2019s Arguments on Fiduciary Breach and No\n Causation are Misleading and Silly ....................................... 15\n\n B. Negligence ........................................................................................ 16\n\n C. Judicial Estoppel............................................................................... 17\n\n D. Breach of Contract and Tortious Interference .................................. 20\n\n E. Racketeering Influenced Corrupt Practices Act (\u201cRICO\u201d) .............. 22\n\n F. Plaintiffs Have the Right to Amend ................................................. 23\n\n G Motion to Withdraw the Reference .................................................. 25\n\n\n i\n\f Case 3:23-cv-01503-B Document 32 Filed 01/12/24 Page 3 of 32 PageID 7970\n\n\n\n TABLE OF AUTHORITIES\n\nCases\n\n2925 Briarpark Ltd. v. Comm'r,\n 163 F.3d 313 (5th Cir. 1999) ............................................................................ 21\n\nAbrahamson v. Fleschner,\n 568 F.2d 862 (2d Cir. 1977) ............................................................................... 4\n\nBarnhart v. Peabody Coal Co.,\n 537 U.S. 149 (2003) ........................................................................................... 6\n\nBelmont v. MB Inv. Partners, Inc.,\n 708 F.3d 470 (3d Cir. 2013)...............................................................................9\n\nBurger-Phillips Co. v. Commissioner,\n 126 F.2d 934 (5th Cir. 1942) ............................................................................21\n\nDouglass v. Beakley,\n 900 F. Supp. 2d 736 (N.D. Tex. 2012) ...........................................................8, 9\n\nGoldstein v. SEC,\n 451 F.3d 873 (2006) .......................................................................................4, 6\n\nIn re Age Ref., Inc.,\n 505 B.R. 447 (W.D. Tex. Bankr. 2014) ............................................................16\n\nIn re Howe,\n 913 F.2d 1138 (5th Cir. 1990) ..........................................................................19\n\nIn re Krisu Hosp., LLC,\n 2021 Bankr. LEXIS 788 (N.D. Tex. Bankr. March 26, 2021) .........................24\n\nLaird v. Integrated Res.,\n 897 F.2d 826 (5th Cir. 1990) ...............................................................................9\n\nMcConnell v. Commonwealth Pictures Corp.,\n 166 N.E.2d 494 (N.Y. 1960) ..............................................................................8\n\n\n ii\n\f Case 3:23-cv-01503-B Document 32 Filed 01/12/24 Page 4 of 32 PageID 7971\n\n\n\nNexPoint Diversified Real Est. Tr. v. Acis Cp. Mgmt., L.P.\u00b8\n 2023 U.S. App. LEXIS 23756 (2nd Cir. Sept. 7, 2023).............................5, 6, 7\n\nReading Co. v. Brown,\n 391 U.S. 471 (1968) ............................................................................. 14, 16, 24\n\nRegional Properties, Inc. v. Financial & Real Estate Consulting Co.,\n 678 F.2d 552 (5th Cir. 1982) .......................................................................... 6-7,\n\nSayles v. Abilene,\n 290 S.W. 239 (Tex. App. 1926)..........................................................................8\n\nSEC v. Capital Gains Research Bureau, Inc.,\n 375 U.S. 180 (1963) ...........................................................................................2\n\nSEC v. Markusen,\n 143 F. Supp. 3d 877 (D. Minn. 2015) ................................................................3\n\nSteadman v. SEC,\n 603 F.2d 1126 (5th Cir. 1979) .............................................................................9\n\nTown Planning & Eng'g Assocs., Inc. v. Amesbury Specialty Co.,\n 342 N.E.2d 706 (Mass. 1976) ............................................................................ 8\n\nTransamerica Mortg. Advisors, Inc. (TAMA) v. Lewis,\n 444 U.S. 11 (1979) .....................................................................................2, 4, 5\n\nTroutman v. Southern R. Co.,\n 441 F.2d 586 (5th Cir. 1971) ..............................................................................8\n\nUnited States v. Elliott,\n 62 F.3d 1304 (11th Cir. 1995) ............................................................................4\n\nUnited States ex rel. Steury v. Cardinal Health, Inc.,\n 625 F.3d 262 (5th Cir. 2010) .............................................................................23\n\nWeingarten Realty Investors v. Miller,\n No. H-11-2522, 2012 U.S. Dist. LEXIS 99958\n (S.D. Tex., July 18, 2012) ................................................................................13\n\n\n iii\n\f Case 3:23-cv-01503-B Document 32 Filed 01/12/24 Page 5 of 32 PageID 7972\n\n\n\nWells Fargo Bank, N.A. v. Titus Chinedu Operaji,\n 698 F.3d 231 (5th Cir. 2012) ...................................................................... 18-19\n\n\nRules, Statutes and Regulations\n\n17 C.F.R. 240.10b-5 ........................................................................................14, 22\n\n17 C.F.R. 240.10b5-1 ......................................................................................14, 15\n\n17 C.F.R. \u00a7 275.202(a)(30)-1(a) ...............................................................................\n\n17 C.F.R. \u00a7 275.206(4)-7 ......................................................................................14\n\n17 C.F.R. \u00a7 275.206(4)-8 .............................................................................. passim\n\n11 U.S.C. \u00a7 101(5) ................................................................................................23\n\n11 U.S.C. \u00a7 503 ...............................................................................................16, 23\n\n15 U.S.C. \u00a7 78j ......................................................................................................14\n\n15 U.S.C. \u00a7 80b-15........................................................................................ passim\n\n15 U.S.C. \u00a7 206 ............................................................................................. passim\n\n18 U.S.C. \u00a7 1964(c) ..............................................................................................22\n\nFED. R. BANKR. P. 7015 .........................................................................................23\n\nFED. R. CIV. P. 8 ........................................................................................ 15, 21, 22\n\nFED. R. CIV. P. 9(b) ................................................................................................15\n\nFED. R. CIV. P. 15 ...................................................................................................23\n\n\n\n\n iv\n\f Case 3:23-cv-01503-B Document 32 Filed 01/12/24 Page 6 of 32 PageID 7973\n\n\n\nOther Authorities\n\nInvestment Advisers Act of 1940 .................................................................. passim\n\nProhibition of Fraud by Advisers to Certain Pooled Investment Vehicles,\n72 Fed. Reg. 44,756, Release No. IA-2626 (Aug. 9, 2007) ...................................3\n\nRESTATEMENT (SECOND) OF TORTS, \u00a7 766 ............................................................22\n\nSAMUEL WILLISTON, THE LAW OF CONTRACTS \u00a7 1761 (1922) ...............................7\n\n\n\n\n v\n\f Case 3:23-cv-01503-B Document 32 Filed 01/12/24 Page 7 of 32 PageID 7974\n\n\n\n I.\n\n INTRODUCTION\n\n Plaintiffs/Appellants Charitable DAF Fund (the \u201cDAF\u201d) and CLO Holdco\n\nLtd. (\u201cHoldco\u201d) (DAF and Holdco, \u201cPlaintiffs\u201d herein) respectfully file this Reply\n\nin support of their direct appeal of the grant of a motion to dismiss filed by Appellee\n\nHighland Capital Management L.P. (\u201cDefendant\u201d or \u201cHighland\u201d herein).1 This case\n\nis on its second trip to this Court to resolve a 12(b)(6) motion to dismiss.\n\n Plaintiffs have a bona-fide complaint about how Highland took a $45 million\n\nasset for itself and only paid $22 million for it via self-dealing, false representations\n\nand omissions, and now it is actually worth double that amount. The basic question\n\nraised for this Court is should a registered investment advisor who lied about the\n\nvalue of an investment be allowed to take it for itself to the detriment of its advisees\n\nand get away with it? The Investment Advisers Act of 1940 (\u201cIAA\u201d) says no. As\n\ndoes Texas fiduciary duty, the HCLOF Members Agreement,2 and negligence law.\n\n No authority cited by Highland holds that an advisor can do what Highland\n\ndid with impunity. This Court should be the first to do so.\n\n\n 1\n To the extent not specifically defined herein, Plaintiffs continue to use the same defined terms\nas defined in the Opening Brief. E.g. \u201cHarbourVest\u201d as defined in n.2 of the Complaint. Plaintiffs\nrefer to their opening brief in this appeal as \u201cOpening Brief,\u201d and refer to the brief filed by\nHighland as the \u201cAppellee\u2019s Brief.\u201d \u201cHarbourVest Interest\u201d is defined in the Opening Brief, p. 5.\n 2\n Holdco\u2019s and Highland\u2019s investments in HCLOF are governed by the Members Agreement\nRelating to the Company dated November 15, 2017 (\u201cCompany Agreement\u201d) (Compl. at \u00b6\u00b6 93\u2013\n94) [R.000120]).\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 1\n\f Case 3:23-cv-01503-B Document 32 Filed 01/12/24 Page 8 of 32 PageID 7975\n\n\n\n II.\n\n ARGUMENTS & AUTHORITIES\n\nA. BREACH OF FIDUCIARY DUTY\n\n 1. Violations of the Advisers Act \u00a7 206 Give Rise to An Equitable Claim\n Under IAA \u00a7 215\n\n The Advisors Act declares void the rights of any party to a contract who makes\n\nor performs the contract in violation of any provision or rule of the IAA. 15 U.S.C.\n\n\u00a7 80b-15 (\u201c\u00a7 215\u201d). The Supreme Court has held that one may bring a claim for any\n\nequitable remedy that is the \u201ccustomary legal incidents of voidness\u201d such as\n\nrestitution or disgorgement. See Transamerica Mortg. Advisors, Inc. (TAMA) v.\n\nLewis, 444 U.S. 11, 19 (1979). Plaintiffs identified the predicate violations of 15\n\nU.S.C. \u00a7 206 (\u201c\u00a7 206\u201d) and its promulgated rule, 17 C.F.R. \u00a7 275.206(4)-8 (\u201cRule\n\n206(4)-8\u201d) as the bases for seeking to void Highland\u2019s right to receive and keep the\n\nHarbourVest Interest.3\n\n There is no dispute that \u00a7 206(4) is a statute that imposes a fiduciary duty on\n\ninvestment advisors. TAMA, 444 U.S. at 17; SEC v. Capital Gains Research Bureau,\n\nInc., 375 U.S. 180, 200-01 (1963) (in enacting IAA Congress \u201crecognized\u201d fiduciary\n\nduties at common law, and \u00a7 206 considers it a \u201cfraud or deceit\u201d when an adviser\n\nfails to disclose what it stands to gain from a transaction).\n\n\n3\n Contrary to Defendant\u2019s unsupported statements, Plaintiffs never contend or pleaded that \u00a7 206\nor \u00a7 215 provide a cause of action for damages or \u201cdiminution in value\u201d.\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 2\n\f Case 3:23-cv-01503-B Document 32 Filed 01/12/24 Page 9 of 32 PageID 7976\n\n\n\n a. \u00a7 206(4) is Not Limited to Direct Advisees, Which the IAA Defines as\n \u201cClients\u201d\n The IAA generally defines \u201cclients\u201d as direct advisees. See 17 C.F.R. \u00a7\n\n275.202(a)(30)-1(a) (incorporated generally, see id. \u00a7 275.222-2). Sections 206(1)\n\nand 206(2) are limited to the relationship between an advisor and \u201cclient.\u201d But \u00a7\n\n206(4) is not so limited. The term \u201cclients\u201d is nowhere in there. Therefore, the\n\nfiduciary duties imposed by \u00a7 206(4) are likewise not limited to direct advisees.\n\n Section 206(4) expressly states that \u201cThe Commission shall, for the purposes\n\nof this paragraph (4) by rules and regulations define, and prescribe means reasonably\n\ndesigned to prevent, such acts, practices, and courses of business as are fraudulent,\n\ndeceptive, or manipulative.\u201d 15 U.S.C. \u00a7 206(4). The SEC promulgated Rule 206(4)-\n\n8 to clarify that the fiduciary duties in \u00a7 206(4) protect investors in a \u201cpooled\n\ninvestment fund.\u201d See Prohibition of Fraud by Advisers to Certain Pooled\n\nInvestment Vehicles, 72 Fed. Reg. 44,756 (Aug. 9, 2007) (\u201cSEC Rule Release\u201d)4, at\n\n44,757-59.5 It explained that Rule 206(4)-8 adopts \u00a7 206(4)\u2019s negligence-based\n\nstandard and is a means to prevent \u201creckless fraud\u201d against investors in funds\n\nmanaged by the advisor. Id. at 44759-60.\n\n\n\n 4\n https://www.govinfo.gov/content/pkg/FR-2007-08-09/pdf/E7-15531.pdf\n 5\n Although Defendant does not contest it, HCLOF is a pooled investment fund because it has\nfewer than 100 investors and does not offer public securities. See Rule 206(4)-8; SEC v. Markusen,\n143 F. Supp. 3d 877, 891 (D. Minn. 2015) (\u201cThe Funds are \u2018pooled investment vehicles\u2019 because\nthey have less than 100 investors and do not publicly offer their securities.\u201d).\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 3\n\f Case 3:23-cv-01503-B Document 32 Filed 01/12/24 Page 10 of 32 PageID 7977\n\n\n\n Defendant hangs its hat on the SEC\u2019s statement that \u201cRule 206(4)\u20138 does not\n\ncreate under the Advisers Act a fiduciary duty to investors or prospective investors\n\nin a pooled investment vehicle not otherwise imposed by law.\u201d Id. at 44760\n\n(emphasis added). Defendant misconstrues this statement. The SEC did not say that\n\none who breaches Rule 206(4)-8 is not in breach of its fiduciary duties. For one\n\nthing, by definition, a breach of Rule 206(4)-8 is a breach of \u00a7 206(4), which is a\n\nbreach of fiduciary duty \u201c\u2026otherwise imposed by law.\u201d Id. Indeed, even before the\n\nrule, the Supreme Court and circuit courts recognized the right of investors in pools\n\nof funds to bring direct actions against the fund advisers for breaches of the IAA.\n\nSee, e.g., TAMA, 444 U.S. at 13; Abrahamson v. Fleschner, 568 F.2d 862, 871-74\n\n(2d Cir. 1977) (investors in fund could sue fund advisor under \u00a7 206) rev\u2019d in part\n\non other grounds; Cf. United States v. Elliott, 62 F.3d 1304, 1311-13 (11th Cir. 1995)\n\n(holding that adviser-client relationship was not required for fraud conviction for\n\nviolations of \u00a7 206).6\n\n Even if Rule 206(4)-8 does not itself reflect a breach of fiduciary duty,\n\n\n\n 6\n Defendants cite Goldstein v. SEC, 451 F.3d 873 (D.C. Cir. 2006) for the proposition that only\ndirect advisees are owed duties. But Goldstein actually holds in Plaintiffs\u2019 favor. It addressed a\nrule identical to Rule 206(4)-8 that was promulgated pursuant to \u00a7 206(2). Id. The D.C. Circuit\nexplained that because \u00a7 206(2) was limited to \u201cclients,\u201d the rule could not be applied to investors\nin investment funds since those investors are not clients. Goldstein, however, observed that the\n\u201canti-fraud provision [\u00a7 206(4)] applies\u2026to persons other than clients\u201d and cited cases wherein\nliability under \u00a7 206(4) had been found against advisors for acts committed against non-clients.\nId. n.6. Critically, the SEC expressly promulgated Rule 206(4)-8 in response to Goldstein. See\nSEC Rule Release No. IA-2626 at 44756-57 and n.3-5.\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 4\n\f Case 3:23-cv-01503-B Document 32 Filed 01/12/24 Page 11 of 32 PageID 7978\n\n\n\nDefendant\u2019s violation of it is actionable under \u00a7 215 because it is triggered by the\n\nviolation of \u201cany\u201d IAA section or rule. 15 U.S.C. \u00a7 80b-15(b). Plaintiffs have\n\notherwise already briefed the violations of \u00a7 206(4) and Rule 206(4)-8 and why the\n\nclaim under \u00a7 215 should survive. See Opening Br. at 25-29.\n\n b. The NexPoint Decision Does Not Help Defendant\n\n Defendant contends that under NexPoint, the Second Circuit held that \u00a7 215\n\nonly voids advisory agreements that were made in violation of the IAA or which\n\ncould not be performed without violating the IAA. See NexPoint Diversified Real\n\nEst. Tr. v. Acis Cp. Mgmt., L.P.\u00b8 2023 U.S. App. LEXIS 23756 (2nd Cir. Sept. 7,\n\n2023). There are several reasons why the NexPoint opinion is no help to Defendant\n\nand, in fact, supports Plaintiffs.\n\n First, while NexPoint did limit the application of \u00a7 215 to voiding contracts\n\nthat were made in violation of the IAA or which could not be performed without\n\nviolating the IAA, it did not limit the application of \u00a7 215 to only advisory\n\nagreements\u2014it was simply addressing the agreement before it which happened to\n\nbe an advisory agreement. To say that in TAMA the Supreme Court intended to read\n\nthe phrase \u201cany contract\u201d in IAA \u00a7 215 to mean only \u201cadvisory agreements\u201d is also\n\na bridge too far when it too only had a challenge to an advisory agreement before it.\n\nSee TAMA, 444 U.S. at 14. Indeed, the plain language of \u00a7 215 applies to \u201cany\n\ncontract.\u201d And the term \u201cadvisory agreement\u201d is actually a defined term in the IAA\n\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 5\n\f Case 3:23-cv-01503-B Document 32 Filed 01/12/24 Page 12 of 32 PageID 7979\n\n\n\n\u00a7 206(d) (15 U.S.C. \u00a7 80b-5(d)). Had Congress intended to limit the application of\n\n\u00a7 215 to only advisory agreements, it would have expressly done so. The fact that it\n\ndid not means it intended for \u00a7 206(d) to apply more broadly. Barnhart v. Peabody\n\nCoal Co., 537 U.S. 149, 168 (2003); Goldstein, 451 F.3d at n.6 (holding that the\n\n\u201canti-fraud provision [\u00a7 206(4)] applies, however, to persons other than clients\u201d)\n\n(citations omitted).\n\n Second, in NexPoint, the plaintiff\u2019s sole argument was that the advisory\n\nagreement was performed in violation of the IAA. Here, however, Plaintiffs have\n\npled, in part, that the settlement agreement was made in violation of the IAA (e.g.,\n\nvia misrepresentation to advisees and investors and in violation of the fiduciary\n\nduties against self-dealing and cherry-picking). Therefore, inasmuch as NexPoint\n\nmight apply here, it supports Plaintiffs\u2019 claim under \u00a7 215.\n\n Third, the NexPoint decision\u2019s holding was predicated in part on cases\n\nconstruing the Exchange Act \u00a7 29\u2019s [15 U.S.C. \u00a7 78cc(b)] identical language to \u00a7\n\n215. However, in Regional Properties, the Fifth Circuit expressly rejected the very\n\nconstruction of the language that the NexPoint court adopted, albeit as that language\n\nappears in \u00a7 29(a) [which the Circuit Court noted was identical to \u00a7 215 of the\n\nAdvisors Act and should be read the same way]:\n\n Section 29(b) does not render void only those contracts that \u201cby\n their terms\u201d violate the Act.\u2026A statute that voided only\n contracts by which persons have agreed in express terms to\n\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 6\n\f Case 3:23-cv-01503-B Document 32 Filed 01/12/24 Page 13 of 32 PageID 7980\n\n\n\n violate the Act would be so narrow as to be a waste of the\n congressional time spent in its enactment.\n If section 29(b) voids only those contracts \u201cwhich by their terms\u201d\n \u2026this interpretation involves reading the word, \"necessarily,\"\n into the statute when it simply is not there\u2026.\n Interpreting section 29(b) to render voidable those contracts that\n are either illegal when made or as in fact performed not only\n avoids these problems but also, in our view, most nearly\n comports with the language used in Section 29(b).\n\nRegional Properties, Inc. v. Financial & Real Estate Consulting Co., 678 F.2d 552,\n\n560-61(5th Cir. 1982) and id. at 558 (noting parallel language and intent between \u00a7\n\n29(a) and IAA \u00a7 215). Thus, binding Fifth Circuit precedent holds that the language\n\nin \u00a7 215 means just what it says: that one who makes an illegal contract, or who\n\nperforms a legal contract in an illegal way, can have their rights under the contract\n\nvoided or forfeited.7 To the extent that the Second Circuit\u2019s NexPoint opinion held\n\n\n 7\n This notion is wholly consistent with the common law which recognizes that as to a contract\nthat can be performed through either lawful or unlawful means, one who performs through\nunlawful means voids not the whole contract but their rights under the contract. Professor Samuel\nWilliston\u2014the reporter of the original Restatement of Contracts\u2014likewise explained that one who\ntenders illegal performance of an otherwise valid agreement (i.e., one which did not require\nunlawful performance) has no right to recovery under that contract:\n It is true that not every illegal act in performing a contract will vitiate\n recovery; . . . but if the performance rendered by the plaintiff is something\n in itself forbidden by law to be rendered the fact that the contract was in\n such general terms as to cover either such illegal performance or a lawful\n performance, and that both parties originally had no intention to have the\n performance unlawful, will surely not justify a recovery on the contract for\n the price of the unlawful performance . . . . [It is] [n]ot the illegality of the\n contract, but the illegality of the plaintiff's conduct either in entering into\n or in performing the contract [that] is the true ground denying recovery\n (italics added).\nSAMUEL WILLISTON, THE LAW OF CONTRACTS \u00a7 1761 (1922). Decisions confirm this view of the\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 7\n\f Case 3:23-cv-01503-B Document 32 Filed 01/12/24 Page 14 of 32 PageID 7981\n\n\n\notherwise, it does not reflect the law in this Circuit or in this state.\n\n 2. Violations of the Advisers Act Give Rise to a Common Law Breach of\n Fiduciary Duty Claim\n\n In their opening brief to this Court, Plaintiffs slashed a shortcut path to why\n\nviolations of the IAA are actionable via state fiduciary duty claims, citing this\n\nCourt\u2019s (literally, this Chamber\u2019s) prior decision that held that a violation of the\n\nAdvisors Act \u00a7 206 is actionable via an action for common law fiduciary duty.\n\nPlaintiffs also showed how they had pled fiduciary duty breaches under Texas state\n\nlaw even in the absence of reliance on the Advisers Act. See Opening Br. 23-28 (and\n\nauthorities cited therein). Defendant\u2019s responsive arguments quickly fail:\n\n First, Defendant conceded that this Court\u2019s decision in Douglass v. Beakley\n\nheld that one could bring a state law fiduciary duty claim based upon violations of\n\nthe IAA. See Appellee Br. at 34-35; see also Douglass v. Beakley, 900 F. Supp. 2d\n\n736, 751-52, n.16 (N.D. Tex. 2012) (Boyle, J.) (denying motion to dismiss state\n\nfiduciary duty claims because \u201cthe Amended Complaint clearly pleads a formal\n\nfiduciary relationship of some type\u201d including \u201cthe Transamerica court's recognition\n\nthat Section 206 of the IAA \u2018establishes federal fiduciary standards to govern the\n\nconduct of investment advisers[.]\u2019\u201d). But, Defendants argue, Douglass was not\n\n\ncommon law. E.g., Troutman v. Southern R. Co., 441 F.2d 586, 591 n.2 (5th Cir. 1971); Sayles v.\nAbilene, 290 S.W. 239, 243 (Tex. App. 1926); McConnell v. Commonwealth Pictures Corp., 166\nN.E.2d 494, 497 (N.Y. 1960); Town Planning & Eng'g Assocs., Inc. v. Amesbury Specialty Co.,\n342 N.E.2d 706, 710 n.4 (Mass. 1976).\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 8\n\f Case 3:23-cv-01503-B Document 32 Filed 01/12/24 Page 15 of 32 PageID 7982\n\n\n\nbinding on the lower court because it goes against the weight of law. What other\n\nlaw? Defendant cites NO CASE that has held that a breach of a fiduciary duty\n\nimposed by IAA \u00a7 206 is not actionable via a common law fiduciary duty claim.8 On\n\nthe other hand, a multitude of such cases agree with Douglass. See Opening Br. at\n\n23-24 (and cases cited therein). Therefore, as a matter of law, the breaches of the\n\nIAA \u00a7 206 and Rule 206(4)-8 are actionable via Texas fiduciary duty law.\n\n Second, Highland further contends that Texas would not recognize a fiduciary\n\nduty owed by an advisor to an advisee, but literally cites no case holding their way.\n\nRather, it relies on two Fifth Circuit cases which\u2014unremarkably\u2014noted that\n\nbecause the IAA supplies a federal basis of fiduciary duty, there is no need to consult\n\nstate law or defer to it. See Appellee Br. at 35. That is a hundred miles from the\n\nproposition that Texas law would not or does not recognize a similar or parallel\n\nfiduciary duty to the one in the IAA. The Douglass case recognized that the formal\n\n\n\n 8\n None of the opinions Defendant cited rebuts or even criticized Douglass\u2019s logic. The quotes are\nradically out of context. In Laird v. Integrated Res., 897 F.2d 826, 837 (5th Cir. 1990), the Fifth\nCircuit implicitly rejected the argument Defendant makes here\u2014that there is no state-imposed\nfiduciary duty; the court explained that, with a federal cause of action, whether there is a state\nfiduciary duty is irrelevant in light of the federally recognized one. That in no way holds that Texas\ndoes not have a fiduciary obligation imposed on investment advisors. In Steadman v. SEC, 603\nF.2d 1126, 1142 (5th Cir. 1979), the Fifth Circuit was addressing the SEC\u2019s use of \u00a7 206 to confer\nto itself the right to adjudicate breaches of trust\u2014the SEC had to allow the courts to adjudicate\nthose. Id. at 1141-42. It too had nothing to do with whether a state law fiduciary duty existed. And\nin Belmont v. MB Inv. Partners, 708 F.3d 470 (3d Cir. 2013), the court conceded that \u201cquestionable\nor not,\u201d courts have roundly accepted that state fiduciary duty claims can be used to recover for\nviolations of the IAA. Id. at 502-03.\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 9\n\f Case 3:23-cv-01503-B Document 32 Filed 01/12/24 Page 16 of 32 PageID 7983\n\n\n\nrelationship formed between an advisor and advisee meets the test under Texas law.\n\n900 F. Supp. 2d at 751-52, n.16. Plaintiffs also cited a multitude of cases holding\n\nthat Texas not only would but actually has recognized that the advisor/advisee\n\nrelationship is a fiduciary one as a matter of state law. Opening Br. at 24-25 (and\n\ncases cited therein). Not only that, but Texas adopted the IAA as its own law for\n\nregistered investment advisors who register with the SEC (further supporting the\n\nposition that the formal relationship formed under the IAA gives rise to a state-\n\nrecognized fiduciary duty)\u2014an argument raised in the Opening Brief and\n\ncompletely ignored in the Appellee\u2019s Brief. See id. at n. 5 (and citations and\n\ndiscussion therein)\n\n Third, Defendant contends that under the internal affairs doctrine, Guernsey\n\nlaw determines whether a fiduciary duty exists between an advisor and an advisee.\n\nAlthough Plaintiffs concede that Guernsey law would determine whether CLO\n\nHoldco, as an investor in HCLOF, would have derivative standing to enforce a\n\nbreach of fiduciary duty owed to HCLOF,9 the fiduciary duty owed by Defendant is\n\nnot determined by Guernsey law because the internal affairs doctrine is irrelevant to\n\nthat question. Defendant cites not a single case or authority for the premise that the\n\ninternal affairs doctrine applies outside the internal affairs of HCLOF. And it is\n\n\n\n9\n We again note that nowhere does the Defendant deny that HoldCo would have derivative standing\nunder Guernsey law.\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 10\n\f Case 3:23-cv-01503-B Document 32 Filed 01/12/24 Page 17 of 32 PageID 7984\n\n\n\nundisputed that Highland is not being sued in its capacity as an officer or director of\n\nHCLOF, whereas Plaintiffs cited several cases holding that the advisory relationship,\n\nto the extent it is governed by federal law, cannot be trumped by an internal affairs\n\nanalysis. See Opening Brief at 29-31.\n\n Moreover, Highland and the DAF have a direct advisory relationship. The\n\ninternal affairs doctrine has nothing to do with that. It is undisputable that IAA \u00a7 206\n\nand Rule 206(4)-8 supply a direct fiduciary duty to the DAF and to CLO Holdco.\n\nAnd the Fifth Circuit has held that, even where it otherwise applies, the internal\n\naffairs doctrine cannot supplant federally-imposed duties. And no case has held that\n\nthe internal affairs doctrine applies to the relationship between an investor in a fund\n\nand one who is NOT an officer or director of the fund. In fact, all of the applicable\n\ncases go the other way.\n\n Fourth, Defendant contends that the advisory agreement allowed Highland to\n\ncompete with Plaintiffs. Not so. This was fully briefed in Plaintiffs\u2019 Opening Brief.\n\nSee Opening Br. at p. 27 n.7. Defendant failed to address a single argument raised\n\ntherein. Defendant instead selectively read passages from the Advisory Agreement\n\nand rehashed them as if the Opening Brief did not exist.10 But, again, what those\n\n\n 10\n Highland attempts to confuse the Court by arguing that at the original hearing on the original\nmotion to dismiss, Plaintiffs cited an earlier version of the Advisory Agreement, as if to suggest\nthat Plaintiffs\u2019 current argument is somehow mooted by the amended version. However, in the\nOpening Brief, Plaintiffs cited the current version, and nothing in the Appellee\u2019s Brief disputes\nthat.\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 11\n\f Case 3:23-cv-01503-B Document 32 Filed 01/12/24 Page 18 of 32 PageID 7985\n\n\n\nprovisions actually say is that if an investment opportunity is right for multiple\n\nadvisees, Highland is not in breach if the DAF lost out on an opportunity that went\n\nto another advisee. Id. In other words, Highland may send investment opportunities\n\nthat might be proper for the DAF to other people it advises, but it cannot keep them\n\nfor itself\u2014a violation of an unwaivable fiduciary duty.\n\n Next, Defendant contends that if this Court finds that judicial estoppel applies,\n\nthen that must mean that this Court agrees that Defendant did not violate the right of\n\nfirst refusal obligation in the HCLOF Members Agreement, and therefore there can\n\nbe no fiduciary duty owed by Defendant to either Plaintiff. This Court has already\n\nruled against this argument when it held that neither collateral nor judicial estoppel\n\napplied to the non-contract-based claims. Moreover, this Court\u2019s decision on judicial\n\nestoppel would be a procedural finding, not a substantive one on the merits. So there\n\nwould be no factual finding to apply to the other claims.\n\n Moreover, Defendant\u2019s argument conflates Highland\u2019s role as an advisor\u2014\n\nwhich gives rise to its fiduciary duties, and its separate capacity as a co-signatory to\n\nthe HCLOF Members Agreement, which gives rise to contractual duties. As argued\n\nabove, Texas and federal law both impose a nonwaivable duty against self-dealing\n\non advisers. So, while the Company Agreement may be relevant to whether Highland\n\nowed a contractual duty, it is irrelevant to whether it, as an investment advisor, owed\n\nfiduciary duties. Therefore, even if this Court were to affirm dismissal of the contract\n\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 12\n\f Case 3:23-cv-01503-B Document 32 Filed 01/12/24 Page 19 of 32 PageID 7986\n\n\n\nclaim on the merits, it is irrelevant to the fiduciary duty claims.\n\n Finally, Defendant contends because HarbourVest sued Highland for\n\nrescission of its purchase of 49% of HCLOF, Highland had no duty to offer the\n\nHarbourVest Interest to the DAF or CLO Holdco because it was simply taking the\n\ninterest back as part of its settlement\u2014which it contends is not a \u201ccorporate\n\nopportunity,\u201d and therefore, there is no breach of fiduciary duty because there was\n\n\u201cno corporate opportunity to divert.\u201d Appellee\u2019s Br. at 32. Id. Highland could have\n\neasily offered the HarbourVest Interest to Holdco for $22 million with full disclosure\n\nthat it was worth over $42 million at the time. It did not. Instead, Highland took the\n\nHarbourVest Interest for itself and gained an immediate windfall. It is absurd to\n\nsuggest that what Highland took was not a \u201ccorporate opportunity\u201d.\n\n The argument also requires the Court to ignore the well-pleaded complaint,\n\nconstrue the allegations in Defendant\u2019s and not Plaintiffs\u2019 favor, and rewrite history.\n\nHighland did not sell HarbourVest its interest in HCLOF\u2014Holdco did on advice\n\nfrom its then-advisor, Highland. Compl. \u00b6\u00b6 10-14 [R.000106-000107]. Highland\n\n\u201ccannot rescind a contract they were not a party to[.]\u201d Weingarten Realty Investors\n\nv. Miller, No. H-11-2522, 2012 U.S. Dist. LEXIS 99958, *4 (S.D. Tex., July 18,\n\n2012).\n\n Furthermore, the statement that \u201cHarbourVest sued for rescission\u201d is false.\n\nHarbourVest filed several proofs of claim. [R.00405-00464]. But nowhere does\n\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 13\n\f Case 3:23-cv-01503-B Document 32 Filed 01/12/24 Page 20 of 32 PageID 7987\n\n\n\nDefendant even use the term \u201crescission\u201d or \u201crescind.\u201d11 Therefore, to use the\n\nrescission construct as a basis for arguing that Highland\u2019s purchase of the\n\nHarbourVest Interest was not a corporate opportunity is disingenuous at best.\n\n 3. Plaintiffs Still Have Not Pled a 10b-5 Claim\n\n Defendant contends that Plaintiffs pleaded a claim under 15 U.S.C. \u00a7 78j and\n\n17 C.F.R. 240.10b-5 (\u201cRule 10b-5\u201d), triggering the PSLRA\u2019s pleading requirements.\n\nBut Plaintiffs again do not assert a cause of action under Rule 10b-5, nor did they\n\nhave to.12\n\n Indeed, as Plaintiffs showed in their Complaint and explained in their Opening\n\nBrief, an investment advisor can be liable for violating Rule 10b-5 because an\n\nadvisor has a duty to disclose and to obtain informed consent, the failure to do which\n\nwill satisfy the misrepresentation and reliance elements. Opening Br. 32-33 (and\n\ncases cited therein). That, coupled with the allegations that Seery\u2019s\n\n\n\n 11\n [R.00405-00464]. The allegations are in \u00b6\u00b6 2-4 of the \u201cAnnex\u201d to each HarbourVest Proof of\nClaim. See, e.g., R.00461. Although HarbourVest filed multiple Proofs, these paragraphs did not\nchange.\n 12\n It appears that perhaps Defendant seized on the allegation of \u201cinsider trading\u201d and the\nstatement that insider trading violates Rule 10b5 and Rule 10b5-1. (Compl. \u00b6 69) [R.000115].\nHowever, Defendant ignores the totality of the allegations leading up to that, which first point out\nthat insider trading violates the IAA \u00a7 206 and 17 C.F.R. \u00a7 275.206(4)-7 (Compl. \u00b6 66) [R.000115.\nThe Complaint then recaps in Paragraph 69 that Highland \u201cviolated a multitude of [the IAA\nregulations, 17 C.F.R. part 275], in addition to Rules 10b5 and 10b5-1.\u201d (emphasis added). The\nmere mention of Rule 10b-5 is not enough. Nor is it a necessary predicate to finding liability under\nthe Advisors Act or for breach of fiduciary duty.\n Therefore, Defendant\u2019s framing of the issue is completely misleading. One could simply remove\nthe reference to Rules 10b-5 and 10b5-1, and it would change nothing of Count I.\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 14\n\f Case 3:23-cv-01503-B Document 32 Filed 01/12/24 Page 21 of 32 PageID 7988\n\n\n\nmisrepresentations were reckless if not intentional (because they violated their own\n\ninternal policies) and were in connection with the purchase and sale of security\n\n(Compl. p. 2 and \u00b6\u00b6 39-48) [R.000104, R.000110-00012], amounts to a violation of\n\nRule 10b-5. Opening Br. 32-33 (and cases cited therein). Moreover, Highland\u2019s\n\npossession of inside information about the value of HCLOF and its assets (Compl.\n\np. 2 and \u00b6\u00b6 76-78) [R.000104, R.000117] would also make its purchase of the\n\nHarbourVest Interest a violation of Rule 10b5-1, which does not require scienter or\n\ncausation. See 17 C.F.R. \u00a7 240.10b5-1. Thus, even if Plaintiffs had pled a claim under\n\nRule 10b-5 or 10b5-1, Plaintiffs\u2019 allegations satisfy the elements.\n\n 4. Defendant\u2019s Arguments on Fiduciary Breach and No Causation Are\n Misleading and Silly\n\n Defendant contends that Plaintiffs have not pled a breach of fiduciary duty\n\nand have not pled causation or injury with sufficient particularity. But Plaintiffs have\n\npled what they contend the violation of fiduciary duty or of the IAA is specifically\u2014\n\nand have done so in spades. E.g., Opening Br. at 25-29 (and record and legal citations\n\ntherein). Also, Plaintiffs did plead damages as specifically as one can\u2014the lost value\n\nof the asset minus what Holdco would have had to pay for it ($22 million). See, e.g.,\n\nCompl. \u00b6\u00b6 88, 100, 102, 143 [R.000119, R.000121, R.000127]. This is sufficient\n\nunder Rules 8 and 9(b). See Opening Br. at 25-29 (and record and legal cites therein).\n\n\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 15\n\f Case 3:23-cv-01503-B Document 32 Filed 01/12/24 Page 22 of 32 PageID 7989\n\n\n\nB. NEGLIGENCE\n\n Defendant\u2019s Response on the right-to-amendment issue13 cannibalizes both its\n\nargument and the lower court\u2019s holding dismissing the negligence claim.\n\n Specifically, Defendant concedes that the Complaint was filed prior to the\n\neffective date of the Final Plan\u2014meaning, Plaintiffs have had no opportunity to fix\n\nany pleading defects if they exist. Moreover, Highland now concedes that the\n\nComplaint is being treated as an \u201cadministrative expense,\u201d Appellee\u2019s Br. at 42-44.\n\nIt is beyond challenge that the term \u201cadministrative expense\u201d under the Reading\n\nexception invoked by Highland includes torts like negligence (see id., citing Reading\n\nCo. v. Brown, 391 U.S. 471, 478-79 (1968)).\n\n Notably, while the Final Plan discharge provision may facially appear to apply\n\nto an administrative expense request [R.003565], it cannot discharge valid\n\nadministrative expense requests under \u00a7 503, because their allowance and payment\n\nis mandatory. 11 U.S.C. \u00a7 503 (noting that valid administrative expenses \u201cshall\u201d be\n\nallowed and paid); In re Age Ref., Inc., 505 B.R. 447, 454 (W.D. Tex. Bankr. 2014)\n\n(noting mandatory nature of \u00a7 503 allowance). Art. IX.B/C [R.003565]) are subject\n\nto Article XI which effectively excludes administrative expense claims from the\n\nscope of discharge and exculpation. See Art.I.B.2 and Art.IX.B [R.003565,\n\n\n\n 13\n Plaintiffs incorporate their arguments in that section as they are germane to the amendment\nand discharge issue as well.\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 16\n\f Case 3:23-cv-01503-B Document 32 Filed 01/12/24 Page 23 of 32 PageID 7990\n\n\n\nR.003570]. Indeed, Highland concedes at p. 42-43 that administrative expense\n\nclaims have not been discharged or exculpated. Therefore, because it is part of the\n\nadministrative expense request, the negligence claim has NOT been discharged or\n\nexculpated.\n\n Moreover, even if the Plan exculpation applied to an amendment, the Plan\n\nexculpation does not apply to gross negligence. Art. IX.B [R.003565]. Defendant\n\ncontends that gross negligence has neither been pled nor are the facts sufficient to\n\nmake out such a pleading. The former is not true, and the latter was not a basis for\n\nthe lower court\u2019s opinion and is also not true. The negligence claim follows the same\n\nfactual allegations as the other tort claims, but accepts that any error by Highland\n\nmay have been unintentional and is thus pled in the alternative. Highland is alleged\n\nto have known of the proper means of calculating the current interest, yet did not do\n\nso in violation of its own compliance policies. E.g., Compl. p.2 \u00b6\u00b6 45-48 [R.000104,\n\nR.000111-00012]. Therefore, gross negligence is properly pled\u2014and if amendment\n\nis necessary to expressly attach the label to it as such, or to more clearly state the\n\nfacts, leave should be granted.\n\nC. JUDICIAL ESTOPPEL\n\n Defendant completely ignores Plaintiffs\u2019 arguments on judicial estoppel.\n\n First, there is no basis for concluding that CLO Holdco\u2019s withdrawal of the\n\nobjection was intentionally inconsistent with bringing the current contract-based\n\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 17\n\f Case 3:23-cv-01503-B Document 32 Filed 01/12/24 Page 24 of 32 PageID 7991\n\n\n\nclaims to be decided on the merits. Holdco\u2019s withdrawal of the objection reflected\n\nits position on the settlement; it is not the same thing as saying that Holdco took the\n\nposition that its claims lacked merit. Such a position, if communicated to the Court,\n\nwas totally inadvertent given that when it withdrew the objection, Holdco had no\n\nidea that Highland was self-dealing and had misrepresented the true value of the\n\nHarbourVest interest\u2014which underlies the current claims. (Compl. \u00b6\u00b6 27-52)\n\n[R.000109-112]. More importantly, Holdco\u2019s counsel explicitly declined to stipulate\n\nthat the objection had no merit or that the right of first refusal had not been violated.\n\nSee 9019 Corr\u2019d Hrg Tr. at 18 [R.003687]. What more could he have done to make\n\nclear that all he was doing was allowing the settlement to move forward, but was not\n\nconceding the merits of the underlying claim? Defendant has never even bothered to\n\naddress this simple issue. Therefore, the withdrawal of the objection cannot be\n\nconstrued as an intentional concession that the current contract claim has no merit.\n\n Second, Defendant further ignores binding Fifth Circuit precedent which\n\nexplains the material difference, and then reversed the application of judicial\n\nestoppel against a non-debtor precisely because they had no duty to disclose. See\n\nWells Fargo Bank, N.A. v. Titus Chinedu Operaji, 698 F.3d 231, 236-37 (5th Cir.\n\n2012). Because Wells Fargo stands for the proposition that judicial estoppel does not\n\nbar claims that a creditor failed to make in a complete disclosure in its proofs of\n\n\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 18\n\f Case 3:23-cv-01503-B Document 32 Filed 01/12/24 Page 25 of 32 PageID 7992\n\n\n\nclaim\u2014which is a path for decision on the merits14\u2014then certainly judicial estoppel\n\ncannot apply here given that the 9019 hearing was not a means to resolution on the\n\nmerits\u2014and in fact, the lower court admitted it could and would have approved the\n\nsettlement even in the face of a valid objection. Accordingly, it is highly material\n\nthat Holdco had no obligation to object\u2014its withdrawal of the objection, combined\n\nwith the fact that the withdrawal was expressly not a statement about the merits of\n\nthe claim, is tantamount to not having made any objection in the first place.\n\n Third, Defendant contends that Holdco had an incentive to \u201cconceal\u201d its claim\n\ndue to the expected appreciation in value of the HarbourVest Interest. Appellee\u2019s Br.\n\nat 20. This is based on no pleading and zero evidence. For this to even begin to have\n\nlegs, there would have to be evidence that Plaintiffs suspected that Highland had lied\n\nabout the value of the interest, and wanted to \u201cwait and see\u201d whether it played out.\n\nThere is no evidence of that. In fact, the evidence is to the contrary: Highland\n\nmisrepresented the true value of the HarbourVest Interest and then reaped a windfall.\n\nOnly Highland concealed its intentions to take advantage of an underpriced asset. To\n\naccuse Holdco of doing what Highland actually did is comical.\n\n Finally, Defendant continues to argue that the withdrawal of the objection is\n\n\n\n 14\n The Fifth Circuit has expressly held that because of the \u201cquick\u201d and non-adversarial nature of\na 9019 hearing, non-settling creditors are not even supposed to bring claims for damages in a 9019\nhearing for resolution on the merits. See In re Howe, 913 F.2d 1138, 1145 (5th Cir. 1990) (and\nauthorities cited therein).\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 19\n\f Case 3:23-cv-01503-B Document 32 Filed 01/12/24 Page 26 of 32 PageID 7993\n\n\n\nthe key issue. But it ignores, again, the facts that (i) the 9019 settlement approval\n\nhearing was not when or where the objection was going to be litigated on the merits\n\nanyway; (ii) the settlement could have been approved even if the objection was\n\ntotally valid; (iii) the lower court admitted in the Order that given the breadth and\n\ncomplexity of the settlement and the need for finality, it would have been approved\n\neven had the objection not been withdrawn [R000065-000067]; and (iv) Defendant\u2019s\n\nadmission that the current litigation is not about the reasonableness of the Settlement\n\nbut is about damages caused by Highland.\n\n At bottom, there is simply no evidence of intentional inconsistency here or\n\nintent to conceal the merits of the contract-related claims.\n\nD. BREACH OF CONTRACT AND TORTIOUS INTERFERENCE\n\n Plaintiffs\u2019 contract argument is that the Members Agreement\u2019s right of first\n\nrefusal (ROFR) is triggered by any offer or sale, and that because the Settlement\n\nAgreement was an offer and/or sale to Highland, and not to Highland\u2019s subsidiary,\n\nthe Settlement Agreement facially violated the ROFR, and the subsequent\n\nassignment by Highland of its right to receive the HarbourVest interest is irrelevant\n\nand cannot undo the violation. Opening Br. at 40-41.\n\n Highland contends that \u201cHarbourVest transferred its interest directly to\n\nHCM\u2019s subsidiary.\u201d and because the Settlement Agreement is not an \u201coffer\u201d or a\n\n\u201csale,\u201d then there is no violation. The first premise is false.\n\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 20\n\f Case 3:23-cv-01503-B Document 32 Filed 01/12/24 Page 27 of 32 PageID 7994\n\n\n\n The latter argument\u2014that a Settlement Agreement wherein one settling party\n\nreceives an asset from another in exchange for releases and $22 million in Class 8\n\ncreditor claims is not an \u201coffer\u201d or \u201csale\u201d is preposterous. See Burger-Phillips Co. v.\n\nCommissioner, 126 F.2d 934, 936 (5th Cir. 1942) (rejecting argument similar to\n\nHighland\u2019s). Not surprisingly, Highland cites no case to support this argument. The\n\nMembers Agreement says that the ROFR is triggered when one tries to \u201csell\u201d their\n\nShares. [R.004497-98]. The Settlement Agreement is with Highland, and only\n\nHighland is the offeree and purchaser of the HarbourVest Interest. [R004517-\n\n004534]. That fits the definition of \u201csell\u201d like a glove\u2014it is an exchange of property\n\nfor consideration. See 2925 Briarpark Ltd. v. Comm'r, 163 F.3d 313, 318 (5th Cir.\n\n1999).\n\n Highland also for the first time contends that the contract action fails because\n\nHoldco did not plead damages. The argument is waived having not been raised or\n\nbriefed below. But even so, Rule 8 applies to this cause of action, and Plaintiffs did\n\nplead damages\u2014the lost value of the asset minus what Holdco would have had to\n\npay for it ($22 million), and the attended costs and liabilities. See, e.g., Compl. \u00b6\u00b6\n\n88, 100, 102, 143 [R.000119, R.000121, R.000127].\n\n As for tortious interference, the Opening Brief addressed the main arguments\n\nHighland raises. Highland newly contends that because it was a party to the HCLOF\n\nMembers Agreement, it cannot be liable for interfering with its \u201cown contract.\u201d But\n\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 21\n\f Case 3:23-cv-01503-B Document 32 Filed 01/12/24 Page 28 of 32 PageID 7995\n\n\n\nthis misconstrues the allegation: Highland is not being accused of inducing the\n\nbreach of its own (or its affiliate\u2019s) contract. Highland is being accused of inducing\n\nHarbourVest to breach its independent obligations to Holdco under the Members\n\nAgreement. That allegation meets the specific elements of tortious interference to a\n\n\u201cT\u201d because Highland was not interfering with its \u201cown contract.\u201d See RESTATEMENT\n\n(SECOND) OF TORTS, \u00a7 766. Defendant\u2019s contention that Plaintiffs have not pled\n\nproximate cause assumed a pleading burden greater than Rule 8 and in any event\n\nwas not raised below.\n\nE. RACKETEERING INFLUENCED CORRUPT PRACTICES ACT (\u201cRICO\u201d)\n\n Defendant wants to have its cake and eat it too: it contends that the RICO\n\nclaim is barred by 18 U.S.C. \u00a7 1964(c) (\u201cno person may rely upon any conduct that\n\nwould have been actionable as fraud in the purchase or sale of securities to establish\n\na violation of section 1962\u201d), but then contends that nothing Defendant did is\n\nactionable as fraud in the purchase or sale of securities. Plaintiffs\u2019 position is this\n\nsimple: Plaintiffs concede that violations of \u00a7 206 trigger the exclusion cited above\n\nunder \u00a7 1964(c). Therefore, RICO should be dismissed without prejudice. But if the\n\nCourt finds that, indeed, there is no way to find a violation of Rule 10b-5\u2014even\n\nthough it has not been pled\u2014then Plaintiffs should be entitled to amend their RICO\n\ncount. To dismiss the entire case in this fashion was simply a bridge too far.\n\n\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 22\n\f Case 3:23-cv-01503-B Document 32 Filed 01/12/24 Page 29 of 32 PageID 7996\n\n\n\nF. PLAINTIFFS HAVE THE RIGHT TO AMEND\n\n Defendant completely ignores the fact that Plaintiffs have yet to be afforded a\n\nsingle opportunity to amend the Complaint, which is reversible error. United States\n\nex rel. Steury v. Cardinal Health, Inc., 625 F.3d 262, 270-71 (5th Cir. 2010).\n\nDefendant contends that Rule 15 does not apply in this Adversary and that 11 U.S.C.\n\n\u00a7 503 bars amendment. Both are wrong.\n\n First, Bankruptcy Rule 7015 expressly adopts FRCP 15 \u201cin adversary\n\nproceedings.\u201d Therefore, Rule 15 is the correct procedural rule.\n\n Second, Highland\u2019s position that any amendment would present a new\n\n\u201cadministrative expense claim\u201d turns on the equivocal use of the term \u201cclaim.\u201d While\n\nconceding that the Complaint is already deemed an administrative expense request,\n\n(Appellee\u2019s Br. at 42-43) Highland\u2014without any legal basis\u2014contends that a new\n\nfactual allegation or theory of recovery for the same injury is tantamount to a new\n\n\u201cclaim\u201d that can be excluded by the administrative expense bar under \u00a7 503.\n\n But \u00a7 503 does not use the term \u201cClaim,\u201d which is defined in the bankruptcy\n\ncode. It refers to a \u201crequest for payment of an administrative expense.\u201d 11 U.S.C. \u00a7\n\n503. The Plan defines an \u201cadministrative expense\u201d to include \u201cthe actual and\n\nnecessary costs and expenses incurred after the petition date\u2026under \u00a7 503\u201d\n\n[R.003520]. Moreover, it defines a \u201cClaim\u201d as a \u201cright to payment.\u201d Plan Art.I.B.\n\n[R.003522] (incorporating 11 U.S.C. \u00a7 101(5)). The Complaint\u2014and any\n\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 23\n\f Case 3:23-cv-01503-B Document 32 Filed 01/12/24 Page 30 of 32 PageID 7997\n\n\n\namendments sought\u2014relate to a single such expense or cost or right to payment: the\n\nloss of the value of the HarbourVest Interest and related liabilities, costs or losses.\n\n Given the above definitions and provisions, so long as an amendment does\n\nnot raise a new \u201crequest for payment of an administrative expense,\u201d there is no new\n\n\u201cadministrative expense\u201d and no new \u201cClaim.\u201d There is no reason why a single\n\nClaim or administrative expense can have multiple factual allegations and legal\n\ntheories behind it. Indeed, the Reading Exception equates the \u201cadministrative\n\nexpense\u201d with the injury for which compensation is being sought, not with a single\n\ntheory of recovery for that injury. See, e.g., In re Krisu Hosp., LLC, 2021 Bankr.\n\nLEXIS 788, *9-10 (N.D. Tex. Bankr. March 26, 2021) (noting that purpose of\n\nReading exception is to avoid unfairness in \u201cdeny[ing] innocent victims\n\ncompensation for injuries\u201d post-petition) (citations omitted). Therefore, by\n\ndefinition, the addition of new factual allegations or even theories of recovery for\n\nthe purposes of recovering the already pled Claim or \u201cadministrative expense\u201d does\n\nnot in itself amount to a new claim or a new \u201crequest for payment of an\n\nadministrative expense,\u201d and therefore does not trigger \u00a7 503\u2019s bar.\n\n Equally, no such proposed amendment should be deemed already discharged\n\nor exculpated. The request to amend, while conditioned on this Court\u2019s decision to\n\ndismiss one or more claims, is procedurally proper and required as a matter of justice\n\nand due process before dismissing any claim with prejudice.\n\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 24\n\f Case 3:23-cv-01503-B Document 32 Filed 01/12/24 Page 31 of 32 PageID 7998\n\n\n\nG. MOTION TO WITHDRAW THE REFERENCE\n\n Given what has been put before this Court in the Opening Brief and here,\n\nPlaintiffs respectfully request that the Court reconsider the Renewed Motion to\n\nWithdraw the Reference (Dkt. 128) [R.004400-004409]. Plaintiffs agree with\n\nHighland that this Court need only do so if it reverses any part of the dismissal order.\n\n\nDated: January 12, 2023 Respectfully submitted,\n\n /s/ Mazin A. Sbaiti\n Mazin A. Sbaiti\n Texas Bar No. 24058096\n Jonathan Bridges\n Texas Bar No. 24028835\n Sbaiti & Company PLLC\n 2200 Ross Avenue \u2013 Suite 4900W\n Dallas, TX 75201\n T: (214) 432-2899\n F: (214) 853-4367\n\n Counsel for Appellants\n\n\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 25\n\f Case 3:23-cv-01503-B Document 32 Filed 01/12/24 Page 32 of 32 PageID 7999\n\n\n\n CERTIFICATE OF SERVICE\n I hereby certify that on January 12, 2024, a true and correct copy of the\n\nforegoing was served via the Court\u2019s CM/ECF system on all counsel of record.\n\n /s/ Mazin A. Sbaiti\n Mazin A. Sbaiti\n\n\n\n CERTIFICATE OF COMPLIANCE\n I hereby certify that this document complies with the type-volume limitations\n\nof Federal Rule of Bankruptcy Procedure (\u201cRule\u201d) 8015(h) as it contains\n\n6,495 words, excluding the portions of the document exempted by Rule 8015(g).\n\n I further certify that this document complies with the typeface requirements\n\nof Rule 8015(a)(5) and the type-style requirements of Rule 8015(a)(7)(B) because it\n\nhas been prepared in a proportionally-spaced typeface using Microsoft Word in 14\n\npoint Times New Roman.\n\n /s/ Mazin A. Sbaiti\n Mazin A. Sbaiti\n\n\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. 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(Sbaiti, Mazin) (Entered: 01/13/2024)","tags":[]},{"resource_uri":"https://www.courtlistener.com/api/rest/v4/docket-entries/375705978/","id":375705978,"docket":"https://www.courtlistener.com/api/rest/v4/dockets/67564951/","recap_documents":[{"resource_uri":"https://www.courtlistener.com/api/rest/v4/recap-documents/383316746/","id":383316746,"tags":[],"absolute_url":"/docket/67564951/31/charitable-daf-fund-lp-v-highland-capital-management-lp/","date_created":"2024-01-16T08:22:23.172265-08:00","date_modified":"2024-10-18T11:27:38.351073-07:00","sha1":"600d1cde356f611fa622df127163a122408937f5","page_count":32,"file_size":652671,"filepath_local":"recap/gov.uscourts.txnd.378781/gov.uscourts.txnd.378781.31.0.pdf","filepath_ia":"https://archive.org/download/gov.uscourts.txnd.378781/gov.uscourts.txnd.378781.31.0.pdf","ia_upload_failure_count":null,"thumbnail":null,"thumbnail_status":0,"plain_text":"Case 3:23-cv-01503-B Document 31 Filed 01/12/24 Page 1 of 32 PageID 7936\n\n\n\n CIVIL ACTION NO. 3:23-CV-1503-B\n\n IN THE UNITED STATES DISTRICT COURT\n FOR THE NORTHERN DISTRICT OF TEXAS\n DALLAS DIVISION\n\n In re: HIGHLAND CAPITAL MANAGEMENT, L.P.,\n Reorganized Debtor.\n__________________________________________________________________\n\n CHARITABLE DAF FUND, L.P.\n and CLO HOLDCO, LTD.,\n\n Appellants,\n v.\n\n HIGHLAND CAPITAL MANAGEMENT, L.P., et al.\n\n Appellee.\n__________________________________________________________________\n\n On Appeal from the United States Bankruptcy Court for the Northern District\n of Texas, Adversary No. 21-03067-sg, Hon. Stacey G.C. Jernigan, Presiding\n\n\n REPLY BRIEF OF APPELLANTS THE CHARITABLE DAF\n FUND, L.P. AND CLO HOLDCO, LTD.\n\n\n Mazin A. Sbaiti\n Jonathan Bridges\n Sbaiti & Company PLLC\n 2200 Ross Avenue \u2013 Suite 4900W\n Dallas, TX 75201\n T: (214) 432-2899\n F: (214) 853-4367\n\n Counsel for Appellants\n\f Case 3:23-cv-01503-B Document 31 Filed 01/12/24 Page 2 of 32 PageID 7937\n\n\n\n TABLE OF CONTENTS\n\nTABLE OF CONTENTS ......................................................................................... i\n\nTABLE OF AUTHORITIES ................................................................................... ii\n\nI. INTRODUCTION ........................................................................................ 1\n\nII. ARGUMENTS & AUTHORITIES .............................................................. 2\n\n A. Breach of Fiduciary Duty ................................................................... 2\n\n 1. Violations of the Advisers Act \u00a7 206 Give Rise to An\n Equitable Claim Under IAA \u00a7 215 .......................................... 2\n\n a. Section 206(4) Is Not Limited to Direct Advisees,\n which the IAA Defines as \u201cClients\u201d .............................. 3\n\n b. The NexPoint Decision Does Not Help Defendant ....... 5\n\n 2. Violations of the Advisers Act Give Rise to a Common\n Law Breach of Fiduciary Duty Claim...................................... 8\n\n 3. Plaintiffs Still Have Not Pled a 10b-5 Claim ......................... 14\n\n 4. Defendant\u2019s Arguments on Fiduciary Breach and No\n Causation are Misleading and Silly ....................................... 15\n\n B. Negligence ........................................................................................ 16\n\n C. Judicial Estoppel............................................................................... 17\n\n D. Breach of Contract and Tortious Interference .................................. 20\n\n E. Racketeering Influenced Corrupt Practices Act (\u201cRICO\u201d) .............. 22\n\n F. Plaintiffs Have the Right to Amend ................................................. 23\n\n G Motion to Withdraw the Reference .................................................. 25\n\n\n i\n\f Case 3:23-cv-01503-B Document 31 Filed 01/12/24 Page 3 of 32 PageID 7938\n\n\n\n TABLE OF AUTHORITIES\n\nCases\n\n2925 Briarpark Ltd. v. Comm'r,\n 163 F.3d 313 (5th Cir. 1999) ............................................................................ 21\n\nAbrahamson v. Fleschner,\n 568 F.2d 862 (2d Cir. 1977) ............................................................................... 4\n\nBarnhart v. Peabody Coal Co.,\n 537 U.S. 149 (2003) ........................................................................................... 6\n\nBelmont v. MB Inv. Partners, Inc.,\n 708 F.3d 470 (3d Cir. 2013)...............................................................................9\n\nBurger-Phillips Co. v. Commissioner,\n 126 F.2d 934 (5th Cir. 1942) ............................................................................21\n\nDouglass v. Beakley,\n 900 F. Supp. 2d 736 (N.D. Tex. 2012) ...........................................................8, 9\n\nGoldstein v. SEC,\n 451 F.3d 873 (2006) .......................................................................................4, 6\n\nIn re Age Ref., Inc.,\n 505 B.R. 447 (W.D. Tex. Bankr. 2014) ............................................................16\n\nIn re Howe,\n 913 F.2d 1138 (5th Cir. 1990) ..........................................................................19\n\nIn re Krisu Hosp., LLC,\n 2021 Bankr. LEXIS 788 (N.D. Tex. Bankr. March 26, 2021) .........................24\n\nLaird v. Integrated Res.,\n 897 F.2d 826 (5th Cir. 1990) ...............................................................................9\n\nMcConnell v. Commonwealth Pictures Corp.,\n 166 N.E.2d 494 (N.Y. 1960) ..............................................................................8\n\n\n ii\n\f Case 3:23-cv-01503-B Document 31 Filed 01/12/24 Page 4 of 32 PageID 7939\n\n\n\nNexPoint Diversified Real Est. Tr. v. Acis Cp. Mgmt., L.P.\u00b8\n 2023 U.S. App. LEXIS 23756 (2nd Cir. Sept. 7, 2023).............................5, 6, 7\n\nReading Co. v. Brown,\n 391 U.S. 471 (1968) ............................................................................. 14, 16, 24\n\nRegional Properties, Inc. v. Financial & Real Estate Consulting Co.,\n 678 F.2d 552 (5th Cir. 1982) .......................................................................... 6-7,\n\nSayles v. Abilene,\n 290 S.W. 239 (Tex. App. 1926)..........................................................................8\n\nSEC v. Capital Gains Research Bureau, Inc.,\n 375 U.S. 180 (1963) ...........................................................................................2\n\nSEC v. Markusen,\n 143 F. Supp. 3d 877 (D. Minn. 2015) ................................................................3\n\nSteadman v. SEC,\n 603 F.2d 1126 (5th Cir. 1979) .............................................................................9\n\nTown Planning & Eng'g Assocs., Inc. v. Amesbury Specialty Co.,\n 342 N.E.2d 706 (Mass. 1976) ............................................................................ 8\n\nTransamerica Mortg. Advisors, Inc. (TAMA) v. Lewis,\n 444 U.S. 11 (1979) .....................................................................................2, 4, 5\n\nTroutman v. Southern R. Co.,\n 441 F.2d 586 (5th Cir. 1971) ..............................................................................8\n\nUnited States v. Elliott,\n 62 F.3d 1304 (11th Cir. 1995) ............................................................................4\n\nUnited States ex rel. Steury v. Cardinal Health, Inc.,\n 625 F.3d 262 (5th Cir. 2010) .............................................................................23\n\nWeingarten Realty Investors v. Miller,\n No. H-11-2522, 2012 U.S. Dist. LEXIS 99958\n (S.D. Tex., July 18, 2012) ................................................................................13\n\n\n iii\n\f Case 3:23-cv-01503-B Document 31 Filed 01/12/24 Page 5 of 32 PageID 7940\n\n\n\nWells Fargo Bank, N.A. v. Titus Chinedu Operaji,\n 698 F.3d 231 (5th Cir. 2012) ...................................................................... 18-19\n\n\nRules, Statutes and Regulations\n\n17 C.F.R. 240.10b-5 ........................................................................................14, 22\n\n17 C.F.R. 240.10b5-1 ......................................................................................14, 15\n\n17 C.F.R. \u00a7 275.202(a)(30)-1(a) ...............................................................................\n\n17 C.F.R. \u00a7 275.206(4)-7 ......................................................................................14\n\n17 C.F.R. \u00a7 275.206(4)-8 .............................................................................. passim\n\n11 U.S.C. \u00a7 101(5) ................................................................................................23\n\n11 U.S.C. \u00a7 503 ...............................................................................................16, 23\n\n15 U.S.C. \u00a7 78j ......................................................................................................14\n\n15 U.S.C. \u00a7 80b-15........................................................................................ passim\n\n15 U.S.C. \u00a7 206 ............................................................................................. passim\n\n18 U.S.C. \u00a7 1964(c) ..............................................................................................22\n\nFED. R. BANKR. P. 7015 .........................................................................................23\n\nFED. R. CIV. P. 8 ........................................................................................ 15, 21, 22\n\nFED. R. CIV. P. 9(b) ................................................................................................15\n\nFED. R. CIV. P. 15 ...................................................................................................23\n\n\n\n\n iv\n\f Case 3:23-cv-01503-B Document 31 Filed 01/12/24 Page 6 of 32 PageID 7941\n\n\n\nOther Authorities\n\nInvestment Advisers Act of 1940 .................................................................. passim\n\nProhibition of Fraud by Advisers to Certain Pooled Investment Vehicles,\n72 Fed. Reg. 44,756, Release No. IA-2626 (Aug. 9, 2007) ...................................3\n\nRESTATEMENT (SECOND) OF TORTS, \u00a7 766 ............................................................22\n\nSAMUEL WILLISTON, THE LAW OF CONTRACTS \u00a7 1761 (1922) ...............................7\n\n\n\n\n v\n\f Case 3:23-cv-01503-B Document 31 Filed 01/12/24 Page 7 of 32 PageID 7942\n\n\n\n I.\n\n INTRODUCTION\n\n Plaintiffs/Appellants Charitable DAF Fund (the \u201cDAF\u201d) and CLO Holdco\n\nLtd. (\u201cHoldco\u201d) (DAF and Holdco, \u201cPlaintiffs\u201d herein) respectfully file this Reply\n\nin support of their direct appeal of the grant of a motion to dismiss filed by Appellee\n\nHighland Capital Management L.P. (\u201cDefendant\u201d or \u201cHighland\u201d herein).1 This case\n\nis on its second trip to this Court to resolve a 12(b)(6) motion to dismiss.\n\n Plaintiffs have a bona-fide complaint about how Highland took a $45 million\n\nasset for itself and only paid $22 million for it via self-dealing, false representations\n\nand omissions, and now it is actually worth double that amount. The basic question\n\nraised for this Court is should a registered investment advisor who lied about the\n\nvalue of an investment be allowed to take it for itself to the detriment of its advisees\n\nand get away with it? The Investment Advisers Act of 1940 (\u201cIAA\u201d) says no. As\n\ndoes Texas fiduciary duty, the HCLOF Members Agreement,2 and negligence law.\n\n No authority cited by Highland holds that an advisor can do what Highland\n\ndid with impunity. This Court should be the first to do so.\n\n\n 1\n To the extent not specifically defined herein, Plaintiffs continue to use the same defined terms\nas defined in the Opening Brief. E.g. \u201cHarbourVest\u201d as defined in n.2 of the Complaint. Plaintiffs\nrefer to their opening brief in this appeal as \u201cOpening Brief,\u201d and refer to the brief filed by\nHighland as the \u201cAppellee\u2019s Brief.\u201d \u201cHarbourVest Interest\u201d is defined in the Opening Brief, p. 5.\n 2\n Holdco\u2019s and Highland\u2019s investments in HCLOF are governed by the Members Agreement\nRelating to the Company dated November 15, 2017 (\u201cCompany Agreement\u201d) (Compl. at \u00b6\u00b6 93\u2013\n94) [R.000120]).\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 1\n\f Case 3:23-cv-01503-B Document 31 Filed 01/12/24 Page 8 of 32 PageID 7943\n\n\n\n II.\n\n ARGUMENTS & AUTHORITIES\n\nA. BREACH OF FIDUCIARY DUTY\n\n 1. Violations of the Advisers Act \u00a7 206 Give Rise to An Equitable Claim\n Under IAA \u00a7 215\n\n The Advisors Act declares void the rights of any party to a contract who makes\n\nor performs the contract in violation of any provision or rule of the IAA. 15 U.S.C.\n\n\u00a7 80b-15 (\u201c\u00a7 215\u201d). The Supreme Court has held that one may bring a claim for any\n\nequitable remedy that is the \u201ccustomary legal incidents of voidness\u201d such as\n\nrestitution or disgorgement. See Transamerica Mortg. Advisors, Inc. (TAMA) v.\n\nLewis, 444 U.S. 11, 19 (1979). Plaintiffs identified the predicate violations of 15\n\nU.S.C. \u00a7 206 (\u201c\u00a7 206\u201d) and its promulgated rule, 17 C.F.R. \u00a7 275.206(4)-8 (\u201cRule\n\n206(4)-8\u201d) as the bases for seeking to void Highland\u2019s right to receive and keep the\n\nHarbourVest Interest.3\n\n There is no dispute that \u00a7 206(4) is a statute that imposes a fiduciary duty on\n\ninvestment advisors. TAMA, 444 U.S. at 17; SEC v. Capital Gains Research Bureau,\n\nInc., 375 U.S. 180, 200-01 (1963) (in enacting IAA Congress \u201crecognized\u201d fiduciary\n\nduties at common law, and \u00a7 206 considers it a \u201cfraud or deceit\u201d when an adviser\n\nfails to disclose what it stands to gain from a transaction).\n\n\n3\n Contrary to Defendant\u2019s unsupported statements, Plaintiffs never contend or pleaded that \u00a7 206\nor \u00a7 215 provide a cause of action for damages or \u201cdiminution in value\u201d.\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 2\n\f Case 3:23-cv-01503-B Document 31 Filed 01/12/24 Page 9 of 32 PageID 7944\n\n\n\n a. \u00a7 206(4) is Not Limited to Direct Advisees, Which the IAA Defines as\n \u201cClients\u201d\n The IAA generally defines \u201cclients\u201d as direct advisees. See 17 C.F.R. \u00a7\n\n275.202(a)(30)-1(a) (incorporated generally, see id. \u00a7 275.222-2). Sections 206(1)\n\nand 206(2) are limited to the relationship between an advisor and \u201cclient.\u201d But \u00a7\n\n206(4) is not so limited. The term \u201cclients\u201d is nowhere in there. Therefore, the\n\nfiduciary duties imposed by \u00a7 206(4) are likewise not limited to direct advisees.\n\n Section 206(4) expressly states that \u201cThe Commission shall, for the purposes\n\nof this paragraph (4) by rules and regulations define, and prescribe means reasonably\n\ndesigned to prevent, such acts, practices, and courses of business as are fraudulent,\n\ndeceptive, or manipulative.\u201d 15 U.S.C. \u00a7 206(4). The SEC promulgated Rule 206(4)-\n\n8 to clarify that the fiduciary duties in \u00a7 206(4) protect investors in a \u201cpooled\n\ninvestment fund.\u201d See Prohibition of Fraud by Advisers to Certain Pooled\n\nInvestment Vehicles, 72 Fed. Reg. 44,756 (Aug. 9, 2007) (\u201cSEC Rule Release\u201d)4, at\n\n44,757-59.5 It explained that Rule 206(4)-8 adopts \u00a7 206(4)\u2019s negligence-based\n\nstandard and is a means to prevent \u201creckless fraud\u201d against investors in funds\n\nmanaged by the advisor. Id. at 44759-60.\n\n\n\n 4\n https://www.govinfo.gov/content/pkg/FR-2007-08-09/pdf/E7-15531.pdf\n 5\n Although Defendant does not contest it, HCLOF is a pooled investment fund because it has\nfewer than 100 investors and does not offer public securities. See Rule 206(4)-8; SEC v. Markusen,\n143 F. Supp. 3d 877, 891 (D. Minn. 2015) (\u201cThe Funds are \u2018pooled investment vehicles\u2019 because\nthey have less than 100 investors and do not publicly offer their securities.\u201d).\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 3\n\f Case 3:23-cv-01503-B Document 31 Filed 01/12/24 Page 10 of 32 PageID 7945\n\n\n\n Defendant hangs its hat on the SEC\u2019s statement that \u201cRule 206(4)\u20138 does not\n\ncreate under the Advisers Act a fiduciary duty to investors or prospective investors\n\nin a pooled investment vehicle not otherwise imposed by law.\u201d Id. at 44760\n\n(emphasis added). Defendant misconstrues this statement. The SEC did not say that\n\none who breaches Rule 206(4)-8 is not in breach of its fiduciary duties. For one\n\nthing, by definition, a breach of Rule 206(4)-8 is a breach of \u00a7 206(4), which is a\n\nbreach of fiduciary duty \u201c\u2026otherwise imposed by law.\u201d Id. Indeed, even before the\n\nrule, the Supreme Court and circuit courts recognized the right of investors in pools\n\nof funds to bring direct actions against the fund advisers for breaches of the IAA.\n\nSee, e.g., TAMA, 444 U.S. at 13; Abrahamson v. Fleschner, 568 F.2d 862, 871-74\n\n(2d Cir. 1977) (investors in fund could sue fund advisor under \u00a7 206) rev\u2019d in part\n\non other grounds; Cf. United States v. Elliott, 62 F.3d 1304, 1311-13 (11th Cir. 1995)\n\n(holding that adviser-client relationship was not required for fraud conviction for\n\nviolations of \u00a7 206).6\n\n Even if Rule 206(4)-8 does not itself reflect a breach of fiduciary duty,\n\n\n\n 6\n Defendants cite Goldstein v. SEC, 451 F.3d 873 (D.C. Cir. 2006) for the proposition that only\ndirect advisees are owed duties. But Goldstein actually holds in Plaintiffs\u2019 favor. It addressed a\nrule identical to Rule 206(4)-8 that was promulgated pursuant to \u00a7 206(2). Id. The D.C. Circuit\nexplained that because \u00a7 206(2) was limited to \u201cclients,\u201d the rule could not be applied to investors\nin investment funds since those investors are not clients. Goldstein, however, observed that the\n\u201canti-fraud provision [\u00a7 206(4)] applies\u2026to persons other than clients\u201d and cited cases wherein\nliability under \u00a7 206(4) had been found against advisors for acts committed against non-clients.\nId. n.6. Critically, the SEC expressly promulgated Rule 206(4)-8 in response to Goldstein. See\nSEC Rule Release No. IA-2626 at 44756-57 and n.3-5.\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 4\n\f Case 3:23-cv-01503-B Document 31 Filed 01/12/24 Page 11 of 32 PageID 7946\n\n\n\nDefendant\u2019s violation of it is actionable under \u00a7 215 because it is triggered by the\n\nviolation of \u201cany\u201d IAA section or rule. 15 U.S.C. \u00a7 80b-15(b). Plaintiffs have\n\notherwise already briefed the violations of \u00a7 206(4) and Rule 206(4)-8 and why the\n\nclaim under \u00a7 215 should survive. See Opening Br. at 25-29.\n\n b. The NexPoint Decision Does Not Help Defendant\n\n Defendant contends that under NexPoint, the Second Circuit held that \u00a7 215\n\nonly voids advisory agreements that were made in violation of the IAA or which\n\ncould not be performed without violating the IAA. See NexPoint Diversified Real\n\nEst. Tr. v. Acis Cp. Mgmt., L.P.\u00b8 2023 U.S. App. LEXIS 23756 (2nd Cir. Sept. 7,\n\n2023). There are several reasons why the NexPoint opinion is no help to Defendant\n\nand, in fact, supports Plaintiffs.\n\n First, while NexPoint did limit the application of \u00a7 215 to voiding contracts\n\nthat were made in violation of the IAA or which could not be performed without\n\nviolating the IAA, it did not limit the application of \u00a7 215 to only advisory\n\nagreements\u2014it was simply addressing the agreement before it which happened to\n\nbe an advisory agreement. To say that in TAMA the Supreme Court intended to read\n\nthe phrase \u201cany contract\u201d in IAA \u00a7 215 to mean only \u201cadvisory agreements\u201d is also\n\na bridge too far when it too only had a challenge to an advisory agreement before it.\n\nSee TAMA, 444 U.S. at 14. Indeed, the plain language of \u00a7 215 applies to \u201cany\n\ncontract.\u201d And the term \u201cadvisory agreement\u201d is actually a defined term in the IAA\n\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 5\n\f Case 3:23-cv-01503-B Document 31 Filed 01/12/24 Page 12 of 32 PageID 7947\n\n\n\n\u00a7 206(d) (15 U.S.C. \u00a7 80b-5(d)). Had Congress intended to limit the application of\n\n\u00a7 215 to only advisory agreements, it would have expressly done so. The fact that it\n\ndid not means it intended for \u00a7 206(d) to apply more broadly. Barnhart v. Peabody\n\nCoal Co., 537 U.S. 149, 168 (2003); Goldstein, 451 F.3d at n.6 (holding that the\n\n\u201canti-fraud provision [\u00a7 206(4)] applies, however, to persons other than clients\u201d)\n\n(citations omitted).\n\n Second, in NexPoint, the plaintiff\u2019s sole argument was that the advisory\n\nagreement was performed in violation of the IAA. Here, however, Plaintiffs have\n\npled, in part, that the settlement agreement was made in violation of the IAA (e.g.,\n\nvia misrepresentation to advisees and investors and in violation of the fiduciary\n\nduties against self-dealing and cherry-picking). Therefore, inasmuch as NexPoint\n\nmight apply here, it supports Plaintiffs\u2019 claim under \u00a7 215.\n\n Third, the NexPoint decision\u2019s holding was predicated in part on cases\n\nconstruing the Exchange Act \u00a7 29\u2019s [15 U.S.C. \u00a7 78cc(b)] identical language to \u00a7\n\n215. However, in Regional Properties, the Fifth Circuit expressly rejected the very\n\nconstruction of the language that the NexPoint court adopted, albeit as that language\n\nappears in \u00a7 29(a) [which the Circuit Court noted was identical to \u00a7 215 of the\n\nAdvisors Act and should be read the same way]:\n\n Section 29(b) does not render void only those contracts that \u201cby\n their terms\u201d violate the Act.\u2026A statute that voided only\n contracts by which persons have agreed in express terms to\n\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 6\n\f Case 3:23-cv-01503-B Document 31 Filed 01/12/24 Page 13 of 32 PageID 7948\n\n\n\n violate the Act would be so narrow as to be a waste of the\n congressional time spent in its enactment.\n If section 29(b) voids only those contracts \u201cwhich by their terms\u201d\n \u2026this interpretation involves reading the word, \"necessarily,\"\n into the statute when it simply is not there\u2026.\n Interpreting section 29(b) to render voidable those contracts that\n are either illegal when made or as in fact performed not only\n avoids these problems but also, in our view, most nearly\n comports with the language used in Section 29(b).\n\nRegional Properties, Inc. v. Financial & Real Estate Consulting Co., 678 F.2d 552,\n\n560-61(5th Cir. 1982) and id. at 558 (noting parallel language and intent between \u00a7\n\n29(a) and IAA \u00a7 215). Thus, binding Fifth Circuit precedent holds that the language\n\nin \u00a7 215 means just what it says: that one who makes an illegal contract, or who\n\nperforms a legal contract in an illegal way, can have their rights under the contract\n\nvoided or forfeited.7 To the extent that the Second Circuit\u2019s NexPoint opinion held\n\n\n 7\n This notion is wholly consistent with the common law which recognizes that as to a contract\nthat can be performed through either lawful or unlawful means, one who performs through\nunlawful means voids not the whole contract but their rights under the contract. Professor Samuel\nWilliston\u2014the reporter of the original Restatement of Contracts\u2014likewise explained that one who\ntenders illegal performance of an otherwise valid agreement (i.e., one which did not require\nunlawful performance) has no right to recovery under that contract:\n It is true that not every illegal act in performing a contract will vitiate\n recovery; . . . but if the performance rendered by the plaintiff is something\n in itself forbidden by law to be rendered the fact that the contract was in\n such general terms as to cover either such illegal performance or a lawful\n performance, and that both parties originally had no intention to have the\n performance unlawful, will surely not justify a recovery on the contract for\n the price of the unlawful performance . . . . [It is] [n]ot the illegality of the\n contract, but the illegality of the plaintiff's conduct either in entering into\n or in performing the contract [that] is the true ground denying recovery\n (italics added).\nSAMUEL WILLISTON, THE LAW OF CONTRACTS \u00a7 1761 (1922). Decisions confirm this view of the\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 7\n\f Case 3:23-cv-01503-B Document 31 Filed 01/12/24 Page 14 of 32 PageID 7949\n\n\n\notherwise, it does not reflect the law in this Circuit or in this state.\n\n 2. Violations of the Advisers Act Give Rise to a Common Law Breach of\n Fiduciary Duty Claim\n\n In their opening brief to this Court, Plaintiffs slashed a shortcut path to why\n\nviolations of the IAA are actionable via state fiduciary duty claims, citing this\n\nCourt\u2019s (literally, this Chamber\u2019s) prior decision that held that a violation of the\n\nAdvisors Act \u00a7 206 is actionable via an action for common law fiduciary duty.\n\nPlaintiffs also showed how they had pled fiduciary duty breaches under Texas state\n\nlaw even in the absence of reliance on the Advisers Act. See Opening Br. 23-28 (and\n\nauthorities cited therein). Defendant\u2019s responsive arguments quickly fail:\n\n First, Defendant conceded that this Court\u2019s decision in Douglass v. Beakley\n\nheld that one could bring a state law fiduciary duty claim based upon violations of\n\nthe IAA. See Appellee Br. at 34-35; see also Douglass v. Beakley, 900 F. Supp. 2d\n\n736, 751-52, n.16 (N.D. Tex. 2012) (Boyle, J.) (denying motion to dismiss state\n\nfiduciary duty claims because \u201cthe Amended Complaint clearly pleads a formal\n\nfiduciary relationship of some type\u201d including \u201cthe Transamerica court's recognition\n\nthat Section 206 of the IAA \u2018establishes federal fiduciary standards to govern the\n\nconduct of investment advisers[.]\u2019\u201d). But, Defendants argue, Douglass was not\n\n\ncommon law. E.g., Troutman v. Southern R. Co., 441 F.2d 586, 591 n.2 (5th Cir. 1971); Sayles v.\nAbilene, 290 S.W. 239, 243 (Tex. App. 1926); McConnell v. Commonwealth Pictures Corp., 166\nN.E.2d 494, 497 (N.Y. 1960); Town Planning & Eng'g Assocs., Inc. v. Amesbury Specialty Co.,\n342 N.E.2d 706, 710 n.4 (Mass. 1976).\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 8\n\f Case 3:23-cv-01503-B Document 31 Filed 01/12/24 Page 15 of 32 PageID 7950\n\n\n\nbinding on the lower court because it goes against the weight of law. What other\n\nlaw? Defendant cites NO CASE that has held that a breach of a fiduciary duty\n\nimposed by IAA \u00a7 206 is not actionable via a common law fiduciary duty claim.8 On\n\nthe other hand, a multitude of such cases agree with Douglass. See Opening Br. at\n\n23-24 (and cases cited therein). Therefore, as a matter of law, the breaches of the\n\nIAA \u00a7 206 and Rule 206(4)-8 are actionable via Texas fiduciary duty law.\n\n Second, Highland further contends that Texas would not recognize a fiduciary\n\nduty owed by an advisor to an advisee, but literally cites no case holding their way.\n\nRather, it relies on two Fifth Circuit cases which\u2014unremarkably\u2014noted that\n\nbecause the IAA supplies a federal basis of fiduciary duty, there is no need to consult\n\nstate law or defer to it. See Appellee Br. at 35. That is a hundred miles from the\n\nproposition that Texas law would not or does not recognize a similar or parallel\n\nfiduciary duty to the one in the IAA. The Douglass case recognized that the formal\n\n\n\n 8\n None of the opinions Defendant cited rebuts or even criticized Douglass\u2019s logic. The quotes are\nradically out of context. In Laird v. Integrated Res., 897 F.2d 826, 837 (5th Cir. 1990), the Fifth\nCircuit implicitly rejected the argument Defendant makes here\u2014that there is no state-imposed\nfiduciary duty; the court explained that, with a federal cause of action, whether there is a state\nfiduciary duty is irrelevant in light of the federally recognized one. That in no way holds that Texas\ndoes not have a fiduciary obligation imposed on investment advisors. In Steadman v. SEC, 603\nF.2d 1126, 1142 (5th Cir. 1979), the Fifth Circuit was addressing the SEC\u2019s use of \u00a7 206 to confer\nto itself the right to adjudicate breaches of trust\u2014the SEC had to allow the courts to adjudicate\nthose. Id. at 1141-42. It too had nothing to do with whether a state law fiduciary duty existed. And\nin Belmont v. MB Inv. Partners, 708 F.3d 470 (3d Cir. 2013), the court conceded that \u201cquestionable\nor not,\u201d courts have roundly accepted that state fiduciary duty claims can be used to recover for\nviolations of the IAA. Id. at 502-03.\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 9\n\f Case 3:23-cv-01503-B Document 31 Filed 01/12/24 Page 16 of 32 PageID 7951\n\n\n\nrelationship formed between an advisor and advisee meets the test under Texas law.\n\n900 F. Supp. 2d at 751-52, n.16. Plaintiffs also cited a multitude of cases holding\n\nthat Texas not only would but actually has recognized that the advisor/advisee\n\nrelationship is a fiduciary one as a matter of state law. Opening Br. at 24-25 (and\n\ncases cited therein). Not only that, but Texas adopted the IAA as its own law for\n\nregistered investment advisors who register with the SEC (further supporting the\n\nposition that the formal relationship formed under the IAA gives rise to a state-\n\nrecognized fiduciary duty)\u2014an argument raised in the Opening Brief and\n\ncompletely ignored in the Appellee\u2019s Brief. See id. at n. 5 (and citations and\n\ndiscussion therein)\n\n Third, Defendant contends that under the internal affairs doctrine, Guernsey\n\nlaw determines whether a fiduciary duty exists between an advisor and an advisee.\n\nAlthough Plaintiffs concede that Guernsey law would determine whether CLO\n\nHoldco, as an investor in HCLOF, would have derivative standing to enforce a\n\nbreach of fiduciary duty owed to HCLOF,9 the fiduciary duty owed by Defendant is\n\nnot determined by Guernsey law because the internal affairs doctrine is irrelevant to\n\nthat question. Defendant cites not a single case or authority for the premise that the\n\ninternal affairs doctrine applies outside the internal affairs of HCLOF. And it is\n\n\n\n9\n We again note that nowhere does the Defendant deny that HoldCo would have derivative standing\nunder Guernsey law.\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 10\n\f Case 3:23-cv-01503-B Document 31 Filed 01/12/24 Page 17 of 32 PageID 7952\n\n\n\nundisputed that Highland is not being sued in its capacity as an officer or director of\n\nHCLOF, whereas Plaintiffs cited several cases holding that the advisory relationship,\n\nto the extent it is governed by federal law, cannot be trumped by an internal affairs\n\nanalysis. See Opening Brief at 29-31.\n\n Moreover, Highland and the DAF have a direct advisory relationship. The\n\ninternal affairs doctrine has nothing to do with that. It is undisputable that IAA \u00a7 206\n\nand Rule 206(4)-8 supply a direct fiduciary duty to the DAF and to CLO Holdco.\n\nAnd the Fifth Circuit has held that, even where it otherwise applies, the internal\n\naffairs doctrine cannot supplant federally-imposed duties. And no case has held that\n\nthe internal affairs doctrine applies to the relationship between an investor in a fund\n\nand one who is NOT an officer or director of the fund. In fact, all of the applicable\n\ncases go the other way.\n\n Fourth, Defendant contends that the advisory agreement allowed Highland to\n\ncompete with Plaintiffs. Not so. This was fully briefed in Plaintiffs\u2019 Opening Brief.\n\nSee Opening Br. at p. 27 n.7. Defendant failed to address a single argument raised\n\ntherein. Defendant instead selectively read passages from the Advisory Agreement\n\nand rehashed them as if the Opening Brief did not exist.10 But, again, what those\n\n\n 10\n Highland attempts to confuse the Court by arguing that at the original hearing on the original\nmotion to dismiss, Plaintiffs cited an earlier version of the Advisory Agreement, as if to suggest\nthat Plaintiffs\u2019 current argument is somehow mooted by the amended version. However, in the\nOpening Brief, Plaintiffs cited the current version, and nothing in the Appellee\u2019s Brief disputes\nthat.\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 11\n\f Case 3:23-cv-01503-B Document 31 Filed 01/12/24 Page 18 of 32 PageID 7953\n\n\n\nprovisions actually say is that if an investment opportunity is right for multiple\n\nadvisees, Highland is not in breach if the DAF lost out on an opportunity that went\n\nto another advisee. Id. In other words, Highland may send investment opportunities\n\nthat might be proper for the DAF to other people it advises, but it cannot keep them\n\nfor itself\u2014a violation of an unwaivable fiduciary duty.\n\n Next, Defendant contends that if this Court finds that judicial estoppel applies,\n\nthen that must mean that this Court agrees that Defendant did not violate the right of\n\nfirst refusal obligation in the HCLOF Members Agreement, and therefore there can\n\nbe no fiduciary duty owed by Defendant to either Plaintiff. This Court has already\n\nruled against this argument when it held that neither collateral nor judicial estoppel\n\napplied to the non-contract-based claims. Moreover, this Court\u2019s decision on judicial\n\nestoppel would be a procedural finding, not a substantive one on the merits. So there\n\nwould be no factual finding to apply to the other claims.\n\n Moreover, Defendant\u2019s argument conflates Highland\u2019s role as an advisor\u2014\n\nwhich gives rise to its fiduciary duties, and its separate capacity as a co-signatory to\n\nthe HCLOF Members Agreement, which gives rise to contractual duties. As argued\n\nabove, Texas and federal law both impose a nonwaivable duty against self-dealing\n\non advisers. So, while the Company Agreement may be relevant to whether Highland\n\nowed a contractual duty, it is irrelevant to whether it, as an investment advisor, owed\n\nfiduciary duties. Therefore, even if this Court were to affirm dismissal of the contract\n\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 12\n\f Case 3:23-cv-01503-B Document 31 Filed 01/12/24 Page 19 of 32 PageID 7954\n\n\n\nclaim on the merits, it is irrelevant to the fiduciary duty claims.\n\n Finally, Defendant contends because HarbourVest sued Highland for\n\nrescission of its purchase of 49% of HCLOF, Highland had no duty to offer the\n\nHarbourVest Interest to the DAF or CLO Holdco because it was simply taking the\n\ninterest back as part of its settlement\u2014which it contends is not a \u201ccorporate\n\nopportunity,\u201d and therefore, there is no breach of fiduciary duty because there was\n\n\u201cno corporate opportunity to divert.\u201d Appellee\u2019s Br. at 32. Id. Highland could have\n\neasily offered the HarbourVest Interest to Holdco for $22 million with full disclosure\n\nthat it was worth over $42 million at the time. It did not. Instead, Highland took the\n\nHarbourVest Interest for itself and gained an immediate windfall. It is absurd to\n\nsuggest that what Highland took was not a \u201ccorporate opportunity\u201d.\n\n The argument also requires the Court to ignore the well-pleaded complaint,\n\nconstrue the allegations in Defendant\u2019s and not Plaintiffs\u2019 favor, and rewrite history.\n\nHighland did not sell HarbourVest its interest in HCLOF\u2014Holdco did on advice\n\nfrom its then-advisor, Highland. Compl. \u00b6\u00b6 10-14 [R.000106-000107]. Highland\n\n\u201ccannot rescind a contract they were not a party to[.]\u201d Weingarten Realty Investors\n\nv. Miller, No. H-11-2522, 2012 U.S. Dist. LEXIS 99958, *4 (S.D. Tex., July 18,\n\n2012).\n\n Furthermore, the statement that \u201cHarbourVest sued for rescission\u201d is false.\n\nHarbourVest filed several proofs of claim. [R.00405-00464]. But nowhere does\n\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 13\n\f Case 3:23-cv-01503-B Document 31 Filed 01/12/24 Page 20 of 32 PageID 7955\n\n\n\nDefendant even use the term \u201crescission\u201d or \u201crescind.\u201d11 Therefore, to use the\n\nrescission construct as a basis for arguing that Highland\u2019s purchase of the\n\nHarbourVest Interest was not a corporate opportunity is disingenuous at best.\n\n 3. Plaintiffs Still Have Not Pled a 10b-5 Claim\n\n Defendant contends that Plaintiffs pleaded a claim under 15 U.S.C. \u00a7 78j and\n\n17 C.F.R. 240.10b-5 (\u201cRule 10b-5\u201d), triggering the PSLRA\u2019s pleading requirements.\n\nBut Plaintiffs again do not assert a cause of action under Rule 10b-5, nor did they\n\nhave to.12\n\n Indeed, as Plaintiffs showed in their Complaint and explained in their Opening\n\nBrief, an investment advisor can be liable for violating Rule 10b-5 because an\n\nadvisor has a duty to disclose and to obtain informed consent, the failure to do which\n\nwill satisfy the misrepresentation and reliance elements. Opening Br. 32-33 (and\n\ncases cited therein). That, coupled with the allegations that Seery\u2019s\n\n\n\n 11\n [R.00405-00464]. The allegations are in \u00b6\u00b6 2-4 of the \u201cAnnex\u201d to each HarbourVest Proof of\nClaim. See, e.g., R.00461. Although HarbourVest filed multiple Proofs, these paragraphs did not\nchange.\n 12\n It appears that perhaps Defendant seized on the allegation of \u201cinsider trading\u201d and the\nstatement that insider trading violates Rule 10b5 and Rule 10b5-1. (Compl. \u00b6 69) [R.000115].\nHowever, Defendant ignores the totality of the allegations leading up to that, which first point out\nthat insider trading violates the IAA \u00a7 206 and 17 C.F.R. \u00a7 275.206(4)-7 (Compl. \u00b6 66) [R.000115.\nThe Complaint then recaps in Paragraph 69 that Highland \u201cviolated a multitude of [the IAA\nregulations, 17 C.F.R. part 275], in addition to Rules 10b5 and 10b5-1.\u201d (emphasis added). The\nmere mention of Rule 10b-5 is not enough. Nor is it a necessary predicate to finding liability under\nthe Advisors Act or for breach of fiduciary duty.\n Therefore, Defendant\u2019s framing of the issue is completely misleading. One could simply remove\nthe reference to Rules 10b-5 and 10b5-1, and it would change nothing of Count I.\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 14\n\f Case 3:23-cv-01503-B Document 31 Filed 01/12/24 Page 21 of 32 PageID 7956\n\n\n\nmisrepresentations were reckless if not intentional (because they violated their own\n\ninternal policies) and were in connection with the purchase and sale of security\n\n(Compl. p. 2 and \u00b6\u00b6 39-48) [R.000104, R.000110-00012], amounts to a violation of\n\nRule 10b-5. Opening Br. 32-33 (and cases cited therein). Moreover, Highland\u2019s\n\npossession of inside information about the value of HCLOF and its assets (Compl.\n\np. 2 and \u00b6\u00b6 76-78) [R.000104, R.000117] would also make its purchase of the\n\nHarbourVest Interest a violation of Rule 10b5-1, which does not require scienter or\n\ncausation. See 17 C.F.R. \u00a7 240.10b5-1. Thus, even if Plaintiffs had pled a claim under\n\nRule 10b-5 or 10b5-1, Plaintiffs\u2019 allegations satisfy the elements.\n\n 4. Defendant\u2019s Arguments on Fiduciary Breach and No Causation Are\n Misleading and Silly\n\n Defendant contends that Plaintiffs have not pled a breach of fiduciary duty\n\nand have not pled causation or injury with sufficient particularity. But Plaintiffs have\n\npled what they contend the violation of fiduciary duty or of the IAA is specifically\u2014\n\nand have done so in spades. E.g., Opening Br. at 25-29 (and record and legal citations\n\ntherein). Also, Plaintiffs did plead damages as specifically as one can\u2014the lost value\n\nof the asset minus what Holdco would have had to pay for it ($22 million). See, e.g.,\n\nCompl. \u00b6\u00b6 88, 100, 102, 143 [R.000119, R.000121, R.000127]. This is sufficient\n\nunder Rules 8 and 9(b). See Opening Br. at 25-29 (and record and legal cites therein).\n\n\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 15\n\f Case 3:23-cv-01503-B Document 31 Filed 01/12/24 Page 22 of 32 PageID 7957\n\n\n\nB. NEGLIGENCE\n\n Defendant\u2019s Response on the right-to-amendment issue13 cannibalizes both its\n\nargument and the lower court\u2019s holding dismissing the negligence claim.\n\n Specifically, Defendant concedes that the Complaint was filed prior to the\n\neffective date of the Final Plan\u2014meaning, Plaintiffs have had no opportunity to fix\n\nany pleading defects if they exist. Moreover, Highland now concedes that the\n\nComplaint is being treated as an \u201cadministrative expense,\u201d Appellee\u2019s Br. at 42-44.\n\nIt is beyond challenge that the term \u201cadministrative expense\u201d under the Reading\n\nexception invoked by Highland includes torts like negligence (see id., citing Reading\n\nCo. v. Brown, 391 U.S. 471, 478-79 (1968)).\n\n Notably, while the Final Plan discharge provision may facially appear to apply\n\nto an administrative expense request [R.003565], it cannot discharge valid\n\nadministrative expense requests under \u00a7 503, because their allowance and payment\n\nis mandatory. 11 U.S.C. \u00a7 503 (noting that valid administrative expenses \u201cshall\u201d be\n\nallowed and paid); In re Age Ref., Inc., 505 B.R. 447, 454 (W.D. Tex. Bankr. 2014)\n\n(noting mandatory nature of \u00a7 503 allowance). Art. IX.B/C [R.003565]) are subject\n\nto Article XI which effectively excludes administrative expense claims from the\n\nscope of discharge and exculpation. See Art.I.B.2 and Art.IX.B [R.003565,\n\n\n\n 13\n Plaintiffs incorporate their arguments in that section as they are germane to the amendment\nand discharge issue as well.\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 16\n\f Case 3:23-cv-01503-B Document 31 Filed 01/12/24 Page 23 of 32 PageID 7958\n\n\n\nR.003570]. Indeed, Highland concedes at p. 42-43 that administrative expense\n\nclaims have not been discharged or exculpated. Therefore, because it is part of the\n\nadministrative expense request, the negligence claim has NOT been discharged or\n\nexculpated.\n\n Moreover, even if the Plan exculpation applied to an amendment, the Plan\n\nexculpation does not apply to gross negligence. Art. IX.B [R.003565]. Defendant\n\ncontends that gross negligence has neither been pled nor are the facts sufficient to\n\nmake out such a pleading. The former is not true, and the latter was not a basis for\n\nthe lower court\u2019s opinion and is also not true. The negligence claim follows the same\n\nfactual allegations as the other tort claims, but accepts that any error by Highland\n\nmay have been unintentional and is thus pled in the alternative. Highland is alleged\n\nto have known of the proper means of calculating the current interest, yet did not do\n\nso in violation of its own compliance policies. E.g., Compl. p.2 \u00b6\u00b6 45-48 [R.000104,\n\nR.000111-00012]. Therefore, gross negligence is properly pled\u2014and if amendment\n\nis necessary to expressly attach the label to it as such, or to more clearly state the\n\nfacts, leave should be granted.\n\nC. JUDICIAL ESTOPPEL\n\n Defendant completely ignores Plaintiffs\u2019 arguments on judicial estoppel.\n\n First, there is no basis for concluding that CLO Holdco\u2019s withdrawal of the\n\nobjection was intentionally inconsistent with bringing the current contract-based\n\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 17\n\f Case 3:23-cv-01503-B Document 31 Filed 01/12/24 Page 24 of 32 PageID 7959\n\n\n\nclaims to be decided on the merits. Holdco\u2019s withdrawal of the objection reflected\n\nits position on the settlement; it is not the same thing as saying that Holdco took the\n\nposition that its claims lacked merit. Such a position, if communicated to the Court,\n\nwas totally inadvertent given that when it withdrew the objection, Holdco had no\n\nidea that Highland was self-dealing and had misrepresented the true value of the\n\nHarbourVest interest\u2014which underlies the current claims. (Compl. \u00b6\u00b6 27-52)\n\n[R.000109-112]. More importantly, Holdco\u2019s counsel explicitly declined to stipulate\n\nthat the objection had no merit or that the right of first refusal had not been violated.\n\nSee 9019 Corr\u2019d Hrg Tr. at 18 [R.003687]. What more could he have done to make\n\nclear that all he was doing was allowing the settlement to move forward, but was not\n\nconceding the merits of the underlying claim? Defendant has never even bothered to\n\naddress this simple issue. Therefore, the withdrawal of the objection cannot be\n\nconstrued as an intentional concession that the current contract claim has no merit.\n\n Second, Defendant further ignores binding Fifth Circuit precedent which\n\nexplains the material difference, and then reversed the application of judicial\n\nestoppel against a non-debtor precisely because they had no duty to disclose. See\n\nWells Fargo Bank, N.A. v. Titus Chinedu Operaji, 698 F.3d 231, 236-37 (5th Cir.\n\n2012). Because Wells Fargo stands for the proposition that judicial estoppel does not\n\nbar claims that a creditor failed to make in a complete disclosure in its proofs of\n\n\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 18\n\f Case 3:23-cv-01503-B Document 31 Filed 01/12/24 Page 25 of 32 PageID 7960\n\n\n\nclaim\u2014which is a path for decision on the merits14\u2014then certainly judicial estoppel\n\ncannot apply here given that the 9019 hearing was not a means to resolution on the\n\nmerits\u2014and in fact, the lower court admitted it could and would have approved the\n\nsettlement even in the face of a valid objection. Accordingly, it is highly material\n\nthat Holdco had no obligation to object\u2014its withdrawal of the objection, combined\n\nwith the fact that the withdrawal was expressly not a statement about the merits of\n\nthe claim, is tantamount to not having made any objection in the first place.\n\n Third, Defendant contends that Holdco had an incentive to \u201cconceal\u201d its claim\n\ndue to the expected appreciation in value of the HarbourVest Interest. Appellee\u2019s Br.\n\nat 20. This is based on no pleading and zero evidence. For this to even begin to have\n\nlegs, there would have to be evidence that Plaintiffs suspected that Highland had lied\n\nabout the value of the interest, and wanted to \u201cwait and see\u201d whether it played out.\n\nThere is no evidence of that. In fact, the evidence is to the contrary: Highland\n\nmisrepresented the true value of the HarbourVest Interest and then reaped a windfall.\n\nOnly Highland concealed its intentions to take advantage of an underpriced asset. To\n\naccuse Holdco of doing what Highland actually did is comical.\n\n Finally, Defendant continues to argue that the withdrawal of the objection is\n\n\n\n 14\n The Fifth Circuit has expressly held that because of the \u201cquick\u201d and non-adversarial nature of\na 9019 hearing, non-settling creditors are not even supposed to bring claims for damages in a 9019\nhearing for resolution on the merits. See In re Howe, 913 F.2d 1138, 1145 (5th Cir. 1990) (and\nauthorities cited therein).\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 19\n\f Case 3:23-cv-01503-B Document 31 Filed 01/12/24 Page 26 of 32 PageID 7961\n\n\n\nthe key issue. But it ignores, again, the facts that (i) the 9019 settlement approval\n\nhearing was not when or where the objection was going to be litigated on the merits\n\nanyway; (ii) the settlement could have been approved even if the objection was\n\ntotally valid; (iii) the lower court admitted in the Order that given the breadth and\n\ncomplexity of the settlement and the need for finality, it would have been approved\n\neven had the objection not been withdrawn [R000065-000067]; and (iv) Defendant\u2019s\n\nadmission that the current litigation is not about the reasonableness of the Settlement\n\nbut is about damages caused by Highland.\n\n At bottom, there is simply no evidence of intentional inconsistency here or\n\nintent to conceal the merits of the contract-related claims.\n\nD. BREACH OF CONTRACT AND TORTIOUS INTERFERENCE\n\n Plaintiffs\u2019 contract argument is that the Members Agreement\u2019s right of first\n\nrefusal (ROFR) is triggered by any offer or sale, and that because the Settlement\n\nAgreement was an offer and/or sale to Highland, and not to Highland\u2019s subsidiary,\n\nthe Settlement Agreement facially violated the ROFR, and the subsequent\n\nassignment by Highland of its right to receive the HarbourVest interest is irrelevant\n\nand cannot undo the violation. Opening Br. at 40-41.\n\n Highland contends that \u201cHarbourVest transferred its interest directly to\n\nHCM\u2019s subsidiary.\u201d and because the Settlement Agreement is not an \u201coffer\u201d or a\n\n\u201csale,\u201d then there is no violation. The first premise is false.\n\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 20\n\f Case 3:23-cv-01503-B Document 31 Filed 01/12/24 Page 27 of 32 PageID 7962\n\n\n\n The latter argument\u2014that a Settlement Agreement wherein one settling party\n\nreceives an asset from another in exchange for releases and $22 million in Class 8\n\ncreditor claims is not an \u201coffer\u201d or \u201csale\u201d is preposterous. See Burger-Phillips Co. v.\n\nCommissioner, 126 F.2d 934, 936 (5th Cir. 1942) (rejecting argument similar to\n\nHighland\u2019s). Not surprisingly, Highland cites no case to support this argument. The\n\nMembers Agreement says that the ROFR is triggered when one tries to \u201csell\u201d their\n\nShares. [R.004497-98]. The Settlement Agreement is with Highland, and only\n\nHighland is the offeree and purchaser of the HarbourVest Interest. [R004517-\n\n004534]. That fits the definition of \u201csell\u201d like a glove\u2014it is an exchange of property\n\nfor consideration. See 2925 Briarpark Ltd. v. Comm'r, 163 F.3d 313, 318 (5th Cir.\n\n1999).\n\n Highland also for the first time contends that the contract action fails because\n\nHoldco did not plead damages. The argument is waived having not been raised or\n\nbriefed below. But even so, Rule 8 applies to this cause of action, and Plaintiffs did\n\nplead damages\u2014the lost value of the asset minus what Holdco would have had to\n\npay for it ($22 million), and the attended costs and liabilities. See, e.g., Compl. \u00b6\u00b6\n\n88, 100, 102, 143 [R.000119, R.000121, R.000127].\n\n As for tortious interference, the Opening Brief addressed the main arguments\n\nHighland raises. Highland newly contends that because it was a party to the HCLOF\n\nMembers Agreement, it cannot be liable for interfering with its \u201cown contract.\u201d But\n\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 21\n\f Case 3:23-cv-01503-B Document 31 Filed 01/12/24 Page 28 of 32 PageID 7963\n\n\n\nthis misconstrues the allegation: Highland is not being accused of inducing the\n\nbreach of its own (or its affiliate\u2019s) contract. Highland is being accused of inducing\n\nHarbourVest to breach its independent obligations to Holdco under the Members\n\nAgreement. That allegation meets the specific elements of tortious interference to a\n\n\u201cT\u201d because Highland was not interfering with its \u201cown contract.\u201d See RESTATEMENT\n\n(SECOND) OF TORTS, \u00a7 766. Defendant\u2019s contention that Plaintiffs have not pled\n\nproximate cause assumed a pleading burden greater than Rule 8 and in any event\n\nwas not raised below.\n\nE. RACKETEERING INFLUENCED CORRUPT PRACTICES ACT (\u201cRICO\u201d)\n\n Defendant wants to have its cake and eat it too: it contends that the RICO\n\nclaim is barred by 18 U.S.C. \u00a7 1964(c) (\u201cno person may rely upon any conduct that\n\nwould have been actionable as fraud in the purchase or sale of securities to establish\n\na violation of section 1962\u201d), but then contends that nothing Defendant did is\n\nactionable as fraud in the purchase or sale of securities. Plaintiffs\u2019 position is this\n\nsimple: Plaintiffs concede that violations of \u00a7 206 trigger the exclusion cited above\n\nunder \u00a7 1964(c). Therefore, RICO should be dismissed without prejudice. But if the\n\nCourt finds that, indeed, there is no way to find a violation of Rule 10b-5\u2014even\n\nthough it has not been pled\u2014then Plaintiffs should be entitled to amend their RICO\n\ncount. To dismiss the entire case in this fashion was simply a bridge too far.\n\n\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 22\n\f Case 3:23-cv-01503-B Document 31 Filed 01/12/24 Page 29 of 32 PageID 7964\n\n\n\nF. PLAINTIFFS HAVE THE RIGHT TO AMEND\n\n Defendant completely ignores the fact that Plaintiffs have yet to be afforded a\n\nsingle opportunity to amend the Complaint, which is reversible error. United States\n\nex rel. Steury v. Cardinal Health, Inc., 625 F.3d 262, 270-71 (5th Cir. 2010).\n\nDefendant contends that Rule 15 does not apply in this Adversary and that 11 U.S.C.\n\n\u00a7 503 bars amendment. Both are wrong.\n\n First, Bankruptcy Rule 7015 expressly adopts FRCP 15 \u201cin adversary\n\nproceedings.\u201d Therefore, Rule 15 is the correct procedural rule.\n\n Second, Highland\u2019s position that any amendment would present a new\n\n\u201cadministrative expense claim\u201d turns on the equivocal use of the term \u201cclaim.\u201d While\n\nconceding that the Complaint is already deemed an administrative expense request,\n\n(Appellee\u2019s Br. at 42-43) Highland\u2014without any legal basis\u2014contends that a new\n\nfactual allegation or theory of recovery for the same injury is tantamount to a new\n\n\u201cclaim\u201d that can be excluded by the administrative expense bar under \u00a7 503.\n\n But \u00a7 503 does not use the term \u201cClaim,\u201d which is defined in the bankruptcy\n\ncode. It refers to a \u201crequest for payment of an administrative expense.\u201d 11 U.S.C. \u00a7\n\n503. The Plan defines an \u201cadministrative expense\u201d to include \u201cthe actual and\n\nnecessary costs and expenses incurred after the petition date\u2026under \u00a7 503\u201d\n\n[R.003520]. Moreover, it defines a \u201cClaim\u201d as a \u201cright to payment.\u201d Plan Art.I.B.\n\n[R.003522] (incorporating 11 U.S.C. \u00a7 101(5)). The Complaint\u2014and any\n\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 23\n\f Case 3:23-cv-01503-B Document 31 Filed 01/12/24 Page 30 of 32 PageID 7965\n\n\n\namendments sought\u2014relate to a single such expense or cost or right to payment: the\n\nloss of the value of the HarbourVest Interest and related liabilities, costs or losses.\n\n Given the above definitions and provisions, so long as an amendment does\n\nnot raise a new \u201crequest for payment of an administrative expense,\u201d there is no new\n\n\u201cadministrative expense\u201d and no new \u201cClaim.\u201d There is no reason why a single\n\nClaim or administrative expense can have multiple factual allegations and legal\n\ntheories behind it. Indeed, the Reading Exception equates the \u201cadministrative\n\nexpense\u201d with the injury for which compensation is being sought, not with a single\n\ntheory of recovery for that injury. See, e.g., In re Krisu Hosp., LLC, 2021 Bankr.\n\nLEXIS 788, *9-10 (N.D. Tex. Bankr. March 26, 2021) (noting that purpose of\n\nReading exception is to avoid unfairness in \u201cdeny[ing] innocent victims\n\ncompensation for injuries\u201d post-petition) (citations omitted). Therefore, by\n\ndefinition, the addition of new factual allegations or even theories of recovery for\n\nthe purposes of recovering the already pled Claim or \u201cadministrative expense\u201d does\n\nnot in itself amount to a new claim or a new \u201crequest for payment of an\n\nadministrative expense,\u201d and therefore does not trigger \u00a7 503\u2019s bar.\n\n Equally, no such proposed amendment should be deemed already discharged\n\nor exculpated. The request to amend, while conditioned on this Court\u2019s decision to\n\ndismiss one or more claims, is procedurally proper and required as a matter of justice\n\nand due process before dismissing any claim with prejudice.\n\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 24\n\f Case 3:23-cv-01503-B Document 31 Filed 01/12/24 Page 31 of 32 PageID 7966\n\n\n\nG. MOTION TO WITHDRAW THE REFERENCE\n\n Given what has been put before this Court in the Opening Brief and here,\n\nPlaintiffs respectfully request that the Court reconsider the Renewed Motion to\n\nWithdraw the Reference (Dkt. 128) [R.004400-004409]. Plaintiffs agree with\n\nHighland that this Court need only do so if it reverses any part of the dismissal order.\n\n\nDated: January 12, 2023 Respectfully submitted,\n\n /s/ Mazin A. Sbaiti\n Mazin A. Sbaiti\n Texas Bar No. 24058096\n Jonathan Bridges\n Texas Bar No. 24028835\n Sbaiti & Company PLLC\n 2200 Ross Avenue \u2013 Suite 4900W\n Dallas, TX 75201\n T: (214) 432-2899\n F: (214) 853-4367\n\n Counsel for Appellants\n\n\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. Page 25\n\f Case 3:23-cv-01503-B Document 31 Filed 01/12/24 Page 32 of 32 PageID 7967\n\n\n\n CERTIFICATE OF SERVICE\n I hereby certify that on January 12, 2024, a true and correct copy of the\n\nforegoing was served via the Court\u2019s CM/ECF system on all counsel of record.\n\n /s/ Mazin A. Sbaiti\n Mazin A. Sbaiti\n\n\n\n CERTIFICATE OF COMPLIANCE\n I hereby certify that this document complies with the type-volume limitations\n\nof Federal Rule of Bankruptcy Procedure (\u201cRule\u201d) 8015(h) as it contains 6,596\n\nwords, excluding the portions of the document exempted by Rule 8015(g).\n\n I further certify that this document complies with the typeface requirements\n\nof Rule 8015(a)(5) and the type-style requirements of Rule 8015(a)(7)(B) because it\n\nhas been prepared in a proportionally-spaced typeface using Microsoft Word in 14\n\npoint Times New Roman.\n\n /s/ Mazin A. Sbaiti\n Mazin A. Sbaiti\n\n\n\n\nReply Brief of Charitable DAF Fund and CLO Holdco Ltd. 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Pro. No. 21-03067-sgj\n Hon. Stacey G. C. Jernigan\n\n\n APPENDIX IN SUPPORT OF APPELLEE\u2019S BRIEF\n\n\nPACHULSKI STANG ZIEHL & JONES LLP HAYWARD PLLC\nJeffrey N. Pomerantz (CA Bar No. 143717) Melissa S. Hayward (Texas Bar No. 24044908)\nJohn A. Morris (NY Bar No. 2405397) Zachery Z. Annable (Texas Bar No. 24053075)\nGregory V. Demo (NY Bar No. 5371992) 10501 N. Central Expy, Ste. 106\nHayley R. Winograd (NY Bar No. 5612569) Dallas, Texas 75231\n10100 Santa Monica Blvd., 13th Floor Telephone: (972) 755-7100\nLos Angeles, CA 90067 Facsimile: (972) 755-7110\nTelephone: (310) 277-6910\nFacsimile: (310) 201-0760\n\n\n Counsel for Highland Capital Management, L.P.\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 2 of 47 PageID 7886\n\n\n\nEx. Description Appx. #\n1. CLO Holdco Ltd. v. Highland CLO Funding Ltd., [2023] GRC061 001-043\n (Roy. Court of Guernsey 1 Dec. 2023)\n\n\n [Remainder of Page Intentionally Blank]\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 3 of 47 PageID 7887\n\n\n\nDated: December 22, 2023 PACHULSKI STANG ZIEHL & JONES LLP\n\n Jeffrey N. Pomerantz (CA Bar No. 143717)\n John A. Morris (NY Bar No. 2405397)\n Gregory V. Demo (NY Bar No. 5371992)\n Hayley R. Winograd (NY Bar No. 5612569)\n 10100 Santa Monica Blvd., 13th Floor\n Los Angeles, CA 90067\n Telephone: (310) 277-6910\n Facsimile: (310) 201-0760\n Email: jpomerantz@pszjlaw.com\n jmorris@pszjlaw.com\n gdemo@pszjlaw.com\n hwinograd@pszjlaw.com\n\n -and-\n\n HAYWARD PLLC\n /s/ Zachery Z. Annable\n Melissa S. Hayward (Texas Bar No. 24044908)\n Zachery Z. Annable (Texas Bar No. 24053075)\n 10501 N. Central Expy, Ste. 106\n Dallas, Texas 75231\n Telephone: (972) 755-7100\n Facsimile: (972) 755-7110\n Email: MHayward@HaywardFirm.com\n ZAnnable@HaywardFirm.com\n\n Counsel for Highland Capital Management, L.P.\n\f Case 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 4 of 47 PageID 7888\n\n\n\n\n CERTIFICATE OF SERVICE\n\n I hereby certify that, on December 22, 2023, the foregoing document was\nserved electronically via the Court\u2019s CM/ECF system on those parties registered to\nreceive such service.\n /s/ Zachery Z. Annable\n Zachery Z. Annable\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 5 of 47 PageID 7889\n\n\n\n EXHIBIT 1\n\n\n\n\n Appx. 001\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 6 of 47 PageID 7890\nComplaint of \u201cunfairly prejudicial\u201d conduct of company\u2019s affairs under ss349 and 350 of\nCompanies (Guernsey) Law 2008. Review of principles. Relevant prejudice must be to\nPlaintiff\u2019s interests as a member of the company and not otherwise. Prejudice must also be\n\u201cunfair\u201d. No such conduct in this case; application dismissed. Court could not, in any event,\ngrant relief which overrode contractual rights of other members of the company not\nconvened, or of third parties.\n\n\n [2023]GRC061\n\n\n IN THE ROYAL COURT OF GUERNSEY\n\n (ORDINARY DIVISION)\n\nBETWEEN:\n\n CLO HOLDCO LIMITED\n\n Applicant\n\n -and-\n\n HIGHLAND CLO FUNDING LIMITED\n\n Respondent\n\n\n\n Before: Her Honour Hazel Marshall KC Lieutenant Bailiff,\n Ms Claire Le Pelley and Dr Simon Bodkin, Jurats\n\n\n Hearing Dates: 24-26 and 30, 31 October 2023\n\n Judgment handed down 1st December 2023\n\n\n\nCounsel for the Applicant: Advocate A Horsbrugh-Porter\nCounsel for the Respondent: Advocate M Dunster\n\n\nCases and legislation referred to:\n\nLegislation:\nGuernsey\n\nRoyal Court (Reform) (Guernsey) Law 2008.\nCompanies (Guernsey) Law 2008, ss 314, 349,350\n\nEngland and Wales:\n\nCompanies Act 1949, s210\nCompanies Act 1980, s 75\n\n\n\n\n Appx. 002\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 7 of 47 PageID 7891\n\n\nCases:\n\nGuernsey\n\nProdefin Trading Ltd v Midland Resources Holding Ltd and others (Royal Court Judgment, 7/2017).\nCarlyle Capital Corporation Ltd v Conway (2017) (Royal Court Judgment 38/2017)\n\nUnited Kingdom\n\nWarmington v Miller [1973] QB 877\nRe Noble & Sons (Clothing) Ltd [1983] BCLC 273\nRe J E Cade & Son Ltd [1992] BCLC 213\nRe Saul D Harrison & Sons PLC [1994] BCC 475\nRe BSB Holdings Ltd 1996 1 BCLC 155 ChD\nO\u2019Neill v Phillips [1999] 1 WLR 1092\nGamlestaden Fastigheter AB v Baltic Partners Ltd [ 2007] Bus L R 1521\nAtt. Gen for Belize v Belize Telecom Ltd [2009] UKPC 10\nRe Neath Rugby ltd (No 2) [2007] EWHC 2999 (Ch)\nApex Global Management Limited v Fi Call Limited [2015] EWHC 3239 (Ch)\nShanda Games Ltd v Maso Capital Investments Ltd (Cayman Islands) [2020] UKPC 2Re Hut Group\nLtd [2021] EWCA Civ 904\nRe Compound Photonics Group Ltd [2022] EWCA Civ 1371\n\n\n INDEX\n\n Para.\n\nIntroduction - this Action and the parties 1\n\nAbout this Judgment 6\n\nThe Facts 11\n\n 2015 17\n 2016 20\n 2017 21\n 2018 24\n 2019 27\n 2020 30\n 2021 39\n 2022 62\n 2023 75\n\nThe Action and the Trial 80\n\nThe Legal Framework 85\n\nEssence of conduct which can be \u201cunfairly prejudicial\u201d 87\n\n Applicant\u2019s submissions 95\n Respondent\u2019s submissions 101\n Discussion 107\n Conclusion 115\n\n\n\n \u00a9 Royal Court of Guernsey Page 2 of 42\n\n Appx. 003\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 8 of 47 PageID 7892\n\n\nUnfairly prejudicial conduct \u2013 the complaints examined 118\n\n (1) Failure to inform CLOH that it was negotiating\n the Settlement Agreements, and\n (2) Retention of HCM as (effective) Portfolio Manager 124\n\nThe eventual matters of actual complaint 132\n Preliminary Point 133\n\n (3) Entry into the 2021 Settlement Agreement 135\n\n Backdrop 135\n Applicant\u2019s submissions 138\n Respondent\u2019s submissions 143\n Discussion and conclusion 147\n\n (4) Intervening in the NexPoint Litigation; coupled with\n (5) Failure to sue US Bank to obtain the retained Redemption Proceeds 160\n\n Backdrop 161\n The complaints 168\n Applicant\u2019s submissions 169\n Respondent\u2019s submissions 173\n Discussion and conclusion 178\n\n (6) Entry into the 2023 Settlement Agreement\n\n Backdrop 182\n The complaints 185\n Applicant\u2019s submissions 186\n Respondent\u2019s submissions 193\n Discussion and conclusion 198\n\nRelief 206\n\nSummary of conclusions and disposal 219\n\n _______________\n\n JUDGMENT\n _______________\n\n\nIntroduction - this Action and the parties\n\n 1. The Applicant, CLO Holdco Ltd (\u201cCLOH\u201d) is a limited company incorporated in the\n Cayman Islands and is the 49.015% minority shareholder in the Respondent, Highland CLO\n Funding Limited (\u201cHCLOF\u201d). CLOH brings this Application against the company,\n HCLOF, under ss 349 (1) (a) and 350 of the Companies (Guernsey) Law 2008 on the grounds\n that\n\n \u201cthe affairs of [HCLOF] are being or have been conducted in a manner that is unfairly\n prejudicial to the interests of the members generally or of some part of the members\n (including at least [itself])\u201d.\n\n\n\n \u00a9 Royal Court of Guernsey Page 3 of 42\n\n Appx. 004\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 9 of 47 PageID 7893\n\n\n 2. The Application, dated 6th March 2023, states that it arises out of the management of HCLOF\n in a manner which has caused ongoing unfair prejudice to CLOH in its capacity as minority\n shareholder as set out in the supporting affidavit of CLOH\u2019s director, Mr Paul Murphy. It\n is alleged that this is \u201cmainly\u201d predicated upon HCLOF - acting, of course, through its own\n Directors, Mr Richard Boleat and Mr Richard Burwood, but primarily the former - having\n aligned HCLOF\u2019s interests with the wider commercial interests of the majority \u201cHCM\n shareholders\u201d (a term explained below) who own 50.612% of HCLOF\u2019s issued shares.\n\n 3. The Application itself does not elaborate further. The supporting affidavit of Mr Murphy\n gave the Applicant\u2019s perspective at the time as to the way in which the affairs of HCLOF had\n been managed, raising several points of complaint aimed, principally (in summary) at matters\n which it was said were inhibiting CLOH\u2019s right or opportunity, in the circumstances, to\n receive funds properly due to shareholder/investors, or alternatively to \u201cexit\u201d its relationship\n with HCLOF. It is not necessary to recite these complaints here, as the grounds of CLOH\u2019s\n Application, and the relief which it seeks, have changed and moved on as the case has\n developed.\n\n 4. The purpose of the Application is said to be to mitigate further harm being done to CLOH\u2019s\n interests, preferably by an order enabling CLOH to terminate its relationship with HCLOF\n on what CLOH submits are equitable terms. CLOH\u2019s preferred option is (or was) that it\n should surrender its shareholding to HCLOF in return for a distribution to it in specie of its\n proportionate share of HCLOF\u2019s underlying assets, these being certain financial instruments\n known as Collateralised Loan Obligations, or \u201cCLOs\u201d. Initially in the Application,\n alternatives were also proposed as to actions which the court might order HCLOF to perform.\n However, these latter forms of relief have rather fallen away as the case has progressed, and\n in fact, the form of relief ultimately sought by CLOH, formulated during the hearing itself,\n was that the court should order HCLOF to buy back CLOH\u2019s shareholdings, in two stages,\n at a price equal to their pro-rata share of HCLOF\u2019s current NAV (or Net Asset Value).\n\n 5. HCLOF resists the Application. It denies that its business has been conducted in any way\n prejudicially to the interests of CLOH as a member of HCLOF, let alone unfairly\n prejudicially. It submits that the relations of the parties are purely commercial, and it relies\n on the documents governing those relations, in particular HCLOF\u2019s Articles of Association,\n and a Members\u2019 Agreement made between all the then shareholders and HCLOF itself in\n 2017. It asserts:\n\n i. that the manner in which HCLOF\u2019s business has been conducted, including in respect\n of the particular matters of complaint raised by CLOH at various times, has been\n entirely in accordance with the terms of those documents \u2013 and that is really an end of\n the matter; but in any event\n\n ii. that, upon examination, the substance of CLOH\u2019s complaints are that business\n decisions taken by HCLOF\u2019s Directors were \u201cwrong\u201d as a matter of business judgment,\n and in the absence of bad faith in and about those decisions \u2013 and CLOH does not\n allege bad faith \u2013 such decisions do not found a claim of \u201cunfair prejudice\u201d,\n\n iii. that the alleged \u201cprejudice\u201d cited by CLOH is, in any event, not prejudice to its\n \u201cinterests as a member\u201d of HCLOF (emphasis added), and\n\n iv. that the relief sought by CLOH is not relief which the court has jurisdiction to grant\n (again, in any event) because it would involve either\n\n (a) contravening provisions of Guernsey company law, specifically, s 314 of the\n Companies (Guernsey) Law 2008 (\u201cthe Companies Law\u201d), or\n\n\n\n \u00a9 Royal Court of Guernsey Page 4 of 42\n\n Appx. 005\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 10 of 47 PageID 7894\n\n\n (b) overriding contractual provisions of the Members\u2019 Agreement or HCLOF\u2019s\n Articles of Association, and neither of these courses is possible in the absence of\n the other members of HCLOF \u2013 and in particular the majority shareholder \u2013 who\n are not convened as parties to this action, and, indeed who cannot be so convened,\n for reasons which will emerge, or\n\n (c) breaching the contractual rights of independent third parties.\n\n\n\n\nAbout this judgment\n\n 6. This is a decision of the Court and this written judgment has been prepared in accordance\n with Section 16 (5) of the Royal Court (Reform) (Guernsey) Law 2008. Pursuant to Section\n 14 (2) of that Law, the Lt-Bailiff did not sum up to the Jurats in open court but instead retired\n with the Jurats.\n\n 7. The Lt-Bailiff reminded the Jurats of their respective roles, namely that the Lt-Bailiff is the\n sole judge of matters of law and procedure and the Jurats must follow her directions on such\n matters, but that Jurats are the sole judges of questions of fact.\n\n 8. The Lt-Bailiff directed the Jurats that in making their factual findings, they must take into\n account all the evidence presented to the court, written, oral and documentary, on behalf of\n both parties, but it was for them to decide what evidence they accepted and what they\n rejected, or what weight they gave to any evidence. They should take into account the\n arguments which they heard from both Advocates, but they were not bound to accept them.\n Insofar as the Lt-Bailiff might herself appear to express views on the facts when guiding their\n deliberations, they should ignore these and reach their own independent conclusions. As to\n this, the standard of proof which they should adopt as regards any finding of fact was the\n ordinary civil standard of proof, namely proof \u201con balance of probability\u201d, and that this meant\n simply that they must be satisfied that the particular fact in issue was more likely to be so,\n than not to be so.\n\n 9. In this case, and with due notice to the parties, the court sat with a complement of only two\n Jurats instead of three, owing to the illness of the third intended Jurat on the first day of the\n hearing. The consequence of this was that in the case of a disagreement on any finding of\n fact between the two Jurats who heard the case, the Lt-Bailiff would have a casting vote on\n that issue. However, the Jurats were the sole arbiters of fact in the first instance, the Lt-\n Bailiff\u2019s finding only being required if they disagreed. In the event, no disagreement arose\n between them.\n\n 10. Therefore, where this judgment sets out holdings of law and reasons therefor, they are the\n holdings and reasons of the Lt-Bailiff; where it sets out findings of fact and reasons therefor,\n they are the common findings and reasons of the Jurats. Where mixed findings of fact and\n law are concerned, they have been reached on the above principles, but are referred to as the\n findings of \u201cthe Court\u201d for brevity.\n\nThe Facts\n\n 11. In order to understand the matters complained of it is first necessary to know something of\n the surrounding facts and of the history, which is very complex. CLOH argues that HCLOF\n has tried to overburden the case with unnecessary and confusing detail in order to bolster its\n case. However, even to assess that proposition requires an examination of the facts. In\n\n\n \u00a9 Royal Court of Guernsey Page 5 of 42\n\n Appx. 006\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 11 of 47 PageID 7895\n\n\n fact, a reasonably full account of the history is necessary for its materiality to two questions.\n The first is an appreciation of the circumstances in which HCLOF\u2019s Board was making the\n decisions of which CLOH complains. The second is to enable a proper analysis of what are,\n or are not, CLOH\u2019s interests \u201cas a member\u201d of HCLOF, as opposed to in any other respect.\n\n 12. The following account is broadly matters which have been common ground, and it is derived\n from the parties\u2019 respective chronologies except where indicated. Otherwise, it can be taken\n to record the Jurats\u2019 findings.\n\n 13. In 1993, a very wealthy United States citizen, Mr James Dondero, founded Highland Capital\n Management LP (\u201cHCM\u201d) as a limited partnership incorporated under the laws of Texas.\n Mr Dondero was its CEO, in fact until January 2020. Its General Partner appears to have\n been Strand Management Inc or Strand Advisors Inc, of which Mr Dondero was also Chief\n Executive. One of its limited partners was a Mr Joshua Terry, or trust interests of his. The\n business of HCM was or included the sponsoring of CLOs.\n\n 14. A CLO is a form of security and the term refers to a special purpose vehicle (or \u201cSPV\u201d) used\n by a portfolio manager to purchase and hold a basket of corporate loans. The CLO sponsor\n purchases such loans from the banks which made them, typically to large companies, and\n bundles them into a basket of (say) 150 or 200, and then sells interests in that basket to\n shareholder/investors. The loans themselves are typically held, pursuant to an indenture, by\n a trustee who has custody of the portfolio investments and also manages the payment\n obligations of the CLO to its investors. Various tranches of debts and quasi-equity securities\n in the form of \u201cNotes\u201d are issued by the SPVs to subscribing investors and the subscription\n proceeds are used to purchase the loans initially. These may be traded, subsequently. The\n tranches have different credit ratings and differing rates of return, according to their priority\n for payment. They will typically be secured, except for the lowest rated tranche, which is\n \u201csubordinated\u201d. The most senior interest (that which will be paid in first priority out of the\n payments being made into the basket by the debtors of the underlying loans) may be rated\n AAA in terms of credit rating, because payment is very secure, but it will receive a lower\n rate of return. Conversely, the inferior interests, the lowest being the \u201cjunior\u201d interest, will\n be rated progressively lower (poorer) on the credit rating scale as their priority for payment\n reduces, but, will conversely receive a higher rate of return, because they are at greater risk\n of non-payment if there are defaults. In investments markets, risk and return are inversely\n correlated.\n\n 15. Mr Dondero was \u2013 and still is - also the ultimate founder and benefactor (or settlor) of the\n Charitable Donor Advisor Fund LLP (\u201cCDAF\u201d), a Cayman Islands limited partnership\n which manages and administers his charitable and philanthropic affairs, although he himself\n apparently has no direct formal involvement in its operation or ownership. CDAF is run by\n a corporate General Partner, with the limited partners comprising Mr Dondero\u2019s family\n trusts, and/or other charitable foundations. CLOH was incorporated at some time in the\n Cayman Islands and is 100% owned by CDAF.\n\n 16. In 2011, Mr Dondero founded Acis Capital Management LP (\u201cACIS\u201d) in the United States,\n as a limited partnership. It was founded as a subsidiary of HCM, to manage HCM\u2019s portfolio\n of CLOs. Mr Terry was a key employee or participator in ACIS, and is now its President\n and sole limited partner, as a result of events yet to be related. As previously mentioned,\n Mr Terry was then also effectively a limited partner in HCM.\n\n 2015\n\n 17. In March 2015, HCLOF was incorporated in Guernsey, - but then under the name Acis Loan\n Funding Limited - as a registered closed-ended collective investment scheme. CLOH was\n initially the 100% shareholder of the company. The directors of HCLOF were a Mr William\n\n \u00a9 Royal Court of Guernsey Page 6 of 42\n\n Appx. 007\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 12 of 47 PageID 7896\n\n\n Scott and a Ms Heather Bestwick, but their functions have been described as \u201cnon-\n executive\u201d; HCLOF used ACIS as its portfolio manager and, of course, ACIS earned fees for\n this.\n\n 18. HCLOF\u2019s investment objective was (obviously) to provide income returns and capital growth\n to its shareholders. It commenced business in August 2015 under a Portfolio Services\n Agreement with ACIS. Its investments were largely in CLOs, some being ACIS CLOs and\n others being Highland CLOs, issued by HCM. This amalgamation or duplication of\n functions between linked entities is not, the evidence suggests, unusual in the high finance\n world.\n\n 19. HCLOF\u2019s \u201cinvestment period\u201d was five years, expiring in April 2020. Whilst HCLOF\n would invest actively during this period, and pay returns (dividends) quarterly to its investors,\n in accordance with their rights as described in its Offering Memorandum, from the expiry of\n the investment period the business would be in \u201cwind-down\u201d mode. The value of CLOs,\n and thus of CLO Notes diminishes over time, as the underlying loans mature and are paid\n off, or terminate in default, or the senior and cheapest rate \u201cNotes\u201d are paid off and fall out\n of account, leaving only those with the highest rates of interest being paid out. Because of\n these factors, the costs and expenses of administration begin to take up a greater proportion\n of the underlying income, making them increasingly more uneconomic until they can even\n become a liability. Typically, therefore, the terms of a CLO will enable the holder of such\n an unprofitable structure to request to redeem it before the maturity of all the underlying\n loans. During the wind-down period, the investments of the investment scheme might\n therefore be realised or retained, according to investment advice and judgements then made,\n with returns continuing to be paid out in accordance with the terms of the investment.\n However, there would be a final cut-off date some years later (in fact, in this case it is\n November 2027) at which time any remaining assets held would simply be realised and the\n CLO fund would be wound up and its proceeds finally distributed to investors, again in\n accordance with their scheme rights.\n\n 2016\n\n 20. In 2016, Mr Dondero fell out with Mr Terry in a very major way. They parted ways, but\n clearly not amicably. ACIS continued to provide portfolio management services to HCLOF,\n with a replacement Portfolio Management Agreement being concluded in December 2016.\n\n 2017\n\n 21. On 20th October 2017, Mr Terry obtained an arbitration award of $8Mn against ACIS. On\n 27th October 2017 HCLOF changed its name from Acis Loan Funding Ltd to its present name\n of Highland Capital Loan Funding Limited.\n\n 22. On 15th November 2017, a particularly important suite of events occurred.\n\n (i) First, by a Subscription and Transfer Agreement, CLOH sold a 50.8%\n shareholding in HCLOF to new shareholders, including 0.63% to HCM,\n 49.98% to various linked companies known as the \u201cHarbourVest\u201d entities and\n also a very small percentage (0.073% in aggregate) to four individual investors\n (who have played no part in these proceedings.)\n\n \u2022 Advocate Horsbrugh-Porter, appearing for CLOH in this matter confirmed that\n this was a voluntary transaction by CLOH. It appears to have been associated\n with a round of further capital raising. However, it left CLOH as a minor,\n albeit significant, shareholder in HCLOF, holding a 49.015% interest in the\n company.\n\n \u00a9 Royal Court of Guernsey Page 7 of 42\n\n Appx. 008\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 13 of 47 PageID 7897\n\n\n\n \u2022 An Offering Memorandum was issued in connection with this transfer and the\n further subscription for new shares in HCLOF which is next referred to below.\n HCLOF\u2019s investment objective continued as above, being (as stated in the\n Offering Memorandum) to provide shareholders with\n\n \u201cstable and growing income returns, and to grow the capital value of\n the \u2026 investment portfolio through opportunistic exposure to CLO\n Notes [and other assets].\u201d\n\n (ii) HCLOF adopted new Articles of Association, and all shareholders subscribed\n for further shares.\n\n (iii) HCLOF appointed Highland Capital Advisor Ltd (\u201cHCA\u201d) a wholly-owned\n subsidiary of HCM, as its portfolio manager in place of ACIS, to manage the\n investment and reinvestment of the company\u2019s assets in accordance with the\n Offering Memorandum. As such, HCA receives (or is entitled to receive if\n certain conditions are met) reimbursement of its expenses, and also a fee\n payment, effectively equivalent in the first place, to 20% of profits made on\n investments after the shareholder/investors themselves have received an initial\n return of 8% (compound) on their investments, and with further provisions for\n the ration of distribution in relation to any monies earned in excess of this\n return. However, it is HCM which in fact provides portfolio management\n services to HCLOF as the \u201csub-advisor\u201d of HCA.\n\n (iv) All the members of HCLOF also entered into a Members\u2019 Agreement, (\u201cthe\n Members\u2019 Agreement\u201d) to which HCLOF itself, and HCA as its portfolio\n manager, were also parties. The terms of the Members\u2019 Agreement have\n assumed some significance as will appear, and, indeed, were intended to take\n priority over the Articles of Association, in case of conflict (see Clause 21).\n\n \u2022 For present purposes it is to be noted that Clause 20 contains several \u201cGeneral\u201d\n provisions, including a denial of any partnership relationship between the\n parties (Clause 20.3), and in particular Clause 20.5 provides that\n\n \u201cEach party shall at all times act in good faith towards the other\n Parties and shall use all reasonable endeavours to ensure that this\n Agreement is observed.\u201d\n\n 23. By this time HCLOF itself had subscribed for and held certain CLO Notes issued under the\n ACIS name. ACIS was the portfolio manager of these CLOs, themselves. The relevant\n CLO SPVs for the purpose of these proceedings are ACIS 2014-4 Ltd, ACIS 2014-5 Ltd and\n ACIS 2014-6 Ltd, which can be conveniently referred to as \u201cACIS-4\u201d, \u201cACIS-5\u201d and\n \u201cACIS-6\u201d (together, \u201cthe ACIS CLOs\u201d). HCLOF was the 100% owner of ACIS-4 and\n ACIS-5, but only 87% owner of ACIS-6. The remaining 13% of ACIS-6 was owned by\n another corporate entity, NexPoint Strategic Opportunities Fund (\u201cNexPoint\u201d). The Jurats\n are satisfied on the balance of the evidence, that Mr Dondero also had/has an interest, or an\n influential association, with NexPoint.\n\n 2018\n\n 24. On 30 January 2018 Mr Terry commenced \u201cinvoluntary bankruptcy proceedings\u201d (no doubt\n the equivalent of compulsory winding up) against ACIS in Texas, in support of enforcing his\n entitlement under his arbitration award. His action cited concerns that HCM, then under the\n control of Mr Dondero, had been depleting ACIS\u2019s assets.\n\n\n \u00a9 Royal Court of Guernsey Page 8 of 42\n\n Appx. 009\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 14 of 47 PageID 7898\n\n\n 25. On 14 May 2018, and doubtless after strenuously contested proceedings, the Texas\n Bankruptcy Court appointed an independent Trustee over the Bankruptcy of ACIS. That\n Trustee apparently issued various proceedings against HCLOF between May and July 2018.\n On 31 May, the Texas Bankruptcy Court took the further measure of issuing, of its own\n motion, a Temporary Restraining Order (\u201cTRO\u201d) prohibiting HCLOF from taking any\n actions in furtherance of optional redemptions or other liquidations of its ACIS CLO Notes.\n Condensing a long story, this TRO was subsequently continued by injunction on 21 June\n 2018, confirmed on 30 August 2018. An appeal by HCLOF failed.\n\n 26. From August 2018, HCM ceased to use ACIS personnel for the management of its business\n and instead formed an association with Brigade Capital Management LLP (\u201cBrigade\u201d).\n\n 2019\n\n 27. On 31st January 2019, the Texas Bankruptcy Court confirmed the fourth iteration of a \u201cPlan\n of Reorganisation\u201d (no doubt the equivalent of a Creditors\u2019 Voluntary Arrangement) for\n ACIS, put forward by Mr Terry and the ACIS Bankruptcy Trustee in the ACIS Bankruptcy.\n This was known as \u201cPlan D\u201d. The Court dismissed objections from HCM and from HCLOF,\n acting by Mr Scott and Ms Bestwick. Within Plan D it was provided that ownership of\n ACIS should be transferred to Mr Terry. The Plan also included an injunction preventing\n HCLOF from seeking the redemption of the ACIS CLOs until the earliest of\n\n i. the resolution of ACIS\u2019s claims against (among others) HCM and Mr Dondero,\n\n ii. payment in full of claims established against ACIS,\n\n iii. a material default under Plan D, or\n\n iv. further order of the Court.\n\n Appeals brought by HCM and HCLOF failed.\n\n 28. On 16th October 2019 HCM filed for bankruptcy in Delaware, but this filing was transferred\n to Texas on 4th December 2019. Mr Dondero was still President and CEO of HCM at this\n time. Proofs of substantial debts, including a claim from Union Bank of Switzerland for just\n over $1Bn and a claim from previous litigation regarding another HCM fund (\u201cCrusader\u201d),\n of around $190Mn were filed against HCM.\n\n 29. On 24th October 2019 CDAF and CLOH filed proceedings in New York against parties\n including (in particular) US Bank as the indentured trustee of the ACIS CLOs, alleging\n mismanagement of the ACIS CLOs (\u201cthe 2019 Lawsuit\u201d).\n\n 2020\n\n 30. On 9th January 2020 the Texas Bankruptcy Court approved a settlement between HCM and\n its committee of unsecured creditors in the HCM Bankruptcy. Within this were terms that\n\n i. Mr Dondero relinquish control of HCM and resign as President and CEO and officer\n and adviser of HCM\u2019s General Partner, Strand Advisors Inc, and\n\n ii. A board of directors be appointed for HCM, comprising Mr James Seery of Strand (an\n experienced financier in the field of distressed investing, and independent of either Mr\n Dondero or Mr Terry) and two others, one of whom is a retired US Judge.\n\n\n\n\n \u00a9 Royal Court of Guernsey Page 9 of 42\n\n Appx. 010\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 15 of 47 PageID 7899\n\n\n Mr Dondero remained an unpaid employee of HCM, and its portfolio manager, but the new\n independent board subsequently brought this relationship to an end as \u201cuntenable\u201d and\n appointed Mr Seery as HCM\u2019s CEO and Chief Restructuring Officer.\n\n 31. Records of proceedings in the US Courts disclose extensive further litigation, after this time,\n between entities in which Mr Dondero was interested, or which he controlled, on the one\n hand, and HCM and also Mr Seery on the other. The process of the HCM Bankruptcy also\n involved ownership of HCM and the majority of its assets being transferred to a trust for its\n creditors, with all HCM\u2019s causes of action being transferred to a litigation sub-trust, again to\n be pursued, realised or otherwise dealt with for the benefit of its creditors. Whilst this is of\n no direct relevance to the present application, it is material as context showing the extensive\n background of hostile litigation.\n\n 32. On 31st January 2020 CDAF and CLOH added Mr Terry and ACIS as defendants to the 2019\n Lawsuit, but then on 5th February they sought, and were granted, the voluntary dismissal of\n that suit but without prejudice to refiling to renew it.\n\n 33. On 6th February 2020, CDAF and CLOH filed a second lawsuit against US Bank and ACIS\n alleging mismanagement of the ACIS CLOs, (\u201cthe 2020 Lawsuit\u201d) but on 25th February\n 2020, they once again sought (and were granted) voluntary dismissal of that suit without\n prejudice to refiling.\n\n 34. On 21st April 2020, through counsel, CDAF and CLOH wrote to ACIS\u2019s counsel, seeking\n changes to the management of the ACIS CLOs, repeating the complaints previously made in\n the dismissed 2019 and 2020 Lawsuits, but expressly reserving all rights should the matter\n proceed to litigation. They repeated these sentiments in a further letter of 8th May 2020.\n\n 35. In the meantime, HCLOF\u2019s investment period expired, on 30th April 2020.\n\n 36. On 7th July 2020, Mr Scott and Ms Bestwick resigned as Directors of HCLOF, owing to\n personal conflicts of interests arising (apparently) in regard to the 2019 and 2020 Lawsuits.\n They appointed Mr Boleat, who is based in Jersey and Mr Burwood, who is based in\n Guernsey, as independent Directors in their place. Mr Boleat had been professionally known\n to Ms Bestwick and he in turn had recommended Mr Burwood. Neither of them had had any\n previous dealings with Mr Dondero, Mr Terry, Mr Seery, or any employee or representative\n of HCM, CLOH, HarbourVest, ACIS or US Bank.\n\n 37. On 31st July 2020, at HCLOF\u2019s Annual General Meeting, Mr Boleat and Mr Burwood were\n re-appointed by the shareholders of HCLOF, including CLOH. In his oral evidence, Mr\n Murphy accepted that these two Directors were entirely independent and, indeed, well-\n qualified for this role by their financial experience.\n\n 38. Mr Boleat has been the Director principally concerned directly with the matters in issue in\n these proceedings. He is a Chartered Accountant, specialising in hedge funds, private equity\n and debt funds and SPV\u2019s and investment groups. He is currently also a director of a number\n of other substantial investment funds, three of which are listed on the London Stock\n Exchange. He has been personally regulated by the Jersey Financial Service Commission\n since 2007, and he has experience of winding up listed funds and the management of a\n contested take-over of a listed fund. He therefore has considerable experience of corporate\n governance in the financial sector, in particular as regards investment funds, and including\n in a contentious context. He is not however, as he emphasises, a qualified lawyer or\n advocate.\n\n 2021\n\n\n\n \u00a9 Royal Court of Guernsey Page 10 of 42\n\n Appx. 011\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 16 of 47 PageID 7900\n\n\n 39. On 14th January 2021, the Texas Bankruptcy Court, acting in the HCM Bankruptcy, approved\n a settlement agreement between HarbourVest and HCM (\u201cthe HarbourVest Settlement)\u201d.\n Within this it was provided that HarbourVest should transfer its 49.98% shareholding in\n HCLOF to HCMLP Investments LLC (\u201cHCMLPI\u201d), a wholly-owned subsidiary of HCM\n and HCM\u2019s nominee, (together, therefore, \u201cthe HCM Shareholders\u201d), thus bringing HCM\u2019s\n effective interest in HCLOF up to 50.612% and making it the majority shareholder. CLOH,\n Mr Dondero and his two family trusts opposed this settlement. CLOH apparently withdrew\n its opposition before the hearing, but the other objections were pressed. However, they were\n dismissed by the Court. HCLOF itself played no part in the settlement.\n\n 40. On 22nd February 2021, the Texas Bankruptcy Court approved a Fifth Amended Plan of\n Reorganisation for HCM. No doubt prompted by the remarkable intensity and extent of\n the hostile litigation landscape previously noted, this included \u201cgatekeeper\u201d provisions\n preventing certain persons, including CLOH, from commencing or pursuing litigation\n against HCM, its subsidiaries, and various other parties connected with it including its\n directors, without first obtaining the leave of that Court.\n\n 41. On 12th April 2021, CDAF and CLOH issued proceedings in Texas against the HCM\n shareholders in relation to the HarbourVest Settlement, alleging breach of a fiduciary duty\n said to be owed to them, negligence and breaches of statutory anti-fraud provisions. HCLOF\n was named as a Defendant. (After certain procedural skirmishes this claim remained on-\n going in the Texas Bankruptcy Court at the time of this hearing with a decision expected in\n a few weeks.)\n\n 42. On 22nd April 2021, Mr Paul Murphy was appointed as a director of CLOH in addition to Mr\n Mark Patrick. Mr Murphy is a lawyer based in the Cayman Islands who specialises in the\n conduct of contentious cross-border insolvencies. He has effectively had charge of these\n proceedings on behalf of CLOH, in parallel with Mr Patrick, previously the sole director,\n dealing with other more administrative matters. He obtains his information as to the facts\n from CLOH\u2019s attorneys in other jurisdictions. He has never met Mr Dondero and has no\n communications with him. The Court infers that this distancing has been intentional, because\n of the contentious history of the whole matter.\n\n 43. On 28th April 2021 HCLOF, ACIS and Mr Terry reached a Settlement Agreement (\u201cthe 2021\n Settlement Agreement\u201d) which disposed of the litigation between them and released all\n cross-claims between them and their affiliates: see Clauses 7, 9 and 10 of that Agreement.\n CLOH was not a party to that Agreement, and the \u201cAcis Releasees\u201d who were the\n beneficiaries of the releases given by ACIS and Mr Terry expressly excluded Mr Dondero,\n CLOH, CDAF and other entities owned or controlled by Mr Dondero (Clause 9).\n\n 44. Exactly when CLOH became aware of this agreement is not perfectly clear and is a matter\n of some contention. Mr Murphy says that CLOH was not aware of this Agreement at all\n until it received discovery in a later action, referred to below. HCLOF points out that Mr\n Murphy requested a copy of this Agreement from Mr Boleat by an email of 11th January\n 2022, to which Mr Boleat responded, on 20th January 2022, referring him to an affidavit\n which had exhibited the Agreement and saying that it was assumed, therefore, that he or\n CLOH\u2019s counsel had a copy. Mr Boleat says that he received no reply. He points out that\n this complaint was then not raised further until Mr Murphy made his fourth affidavit, on 23rd\n September 2023.\n\n 45. CLOH apparently does not complain that HCLOF\u2019s entering into the 2021 Settlement\n Agreement was itself unfairly prejudicial to its interests. Rather, its complaint is that in\n doing so, HCLOF agreed to a particular term, contained in Clause 2(iii) of the Agreement,\n to the effect that HCLOF would thereafter ensure that any third party transferee, assignee or\n successor, direct or indirect, to the \u201cHCLOF Subordinated Notes\u201d (which were the ACIS\n\n \u00a9 Royal Court of Guernsey Page 11 of 42\n\n Appx. 012\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 17 of 47 PageID 7901\n\n\n CLO Notes held by HCLOF) would not be affiliated in any way with Mr Dondero, CLOH,\n CDAF or any other entities owned or controlled by Mr Dondero or managed by any affiliate\n of his. In effect, this precluded HCLOF from transferring the ACIS CLOs to CLOH (or to\n any \u201cDondero entity\u201d), and required HCLOF to take steps to prevent such CLOs coming into\n CLOH\u2019s (or any other Dondero entity\u2019s) hands.\n\n 46. CLOH complains that this conduct of HCLOF was unfairly prejudicial to its interests as a\n member of HCLOF, because it created an impediment to CLOH\u2019s achieving its desired exit\n strategy of taking an in specie distribution of assets from HCLOF. Mr Boleat has pointed\n out that CLOH had no right to such a possibility under the terms of its investment, and the\n possibility of taking any such course was not raised by CLOH until several months later.\n\n 47. Under the 2021 Settlement Agreement, though, the injunction which had been preventing\n HCLOF from seeking to redeem its ACIS subordinated loan Notes was lifted. Consequently,\n on 12th May 2021 HCLOF was able to exercise its option, contained within its subscription\n rights as the 100% holder of ACIS-4 and ACIS-5 CLO Notes, and the sufficient majority\n (86.63%) holder of those in ACIS-6, to request that US Bank redeem or realise all those\n outstanding Notes, paving the way to a distribution of the proceeds to HCLOF shareholders.\n\n 48. Rather promptly thereafter, however, on 14th May 2021 NexPoint filed complaints in the\n New York Courts against ACIS (as the ACIS CLO portfolio manager), US Bank (as trustee),\n Mr Terry (as ACIS\u2019s principal) and Brigade as its investment manager, alleging breach of\n fiduciary duty regarding the ACIS-6 CLO (\u201cthe NexPoint Litigation\u201d).\n\n 49. On 17th June 2021, following a finding of contempt of court against Mr Dondero for attempts\n to interfere with the management of HCM, the Texas Bankruptcy Court required all \u201cNon-\n Debtor Related Entities\u201d, expressly including CDAF and CLOH, to provide evidence of their\n ownership, and whether Mr Dondero or his family trusts had any direct or indirect ownership\n interest in them.\n\n 50. On 23rd June 2021 US Bank sold the underlying assets held by the ACIS CLOs and redeemed\n the secure Notes, leaving only the junior subordinated Notes, owned by HCLOF,\n outstanding. However, US Bank retained the remaining proceeds (\u201cthe Redemption\n Proceeds\u201d) and declined to release them. It informed HCLOF orally of this decision on\n 15th July 2021, explaining its reasons.\n\n 51. On being informed of the retention, CLOH wrote to HCLOF on 22nd July 2021 expressing\n concern and asking what action HCLOF was therefore taking. By a letter of 23rd July 2021\n HCLOF\u2019s administrators, Elysium Fund Management Limited (\u201cElysium\u2019), relayed to\n CLOH US Bank\u2019s explanation of its reasons, namely that it was retaining the Redemption\n Proceeds to cover its own and ACIS\u2019s potential costs and liabilities related to pending and\n threatened litigation concerning the ACIS CLOs. By a letter of 27th July 2021 CLOH wrote\n to HCLOF setting out why it considered that US Bank had no right to retain the Redemption\n Proceeds. By a letter of 28th July 2021, HCLOF wrote to US Bank strongly objecting to the\n retention, and reserving its right to take legal action, whilst also expressing willingness to\n enter into discussion to try to find a resolution without the need for this.\n\n 52. On 3rd August 2021, on yet another front, the Texas Bankruptcy Court found parties including\n CDAF, CLOH, Mr Dondero and Mr Patrick, (who was a director of CDAF as well as CLOH)\n in contempt of court for their respective involvements in bringing proceedings against Mr\n Seery without the leave of the Bankruptcy Court, in breach of the gatekeeper provisions\n contained in the Plan of Reorganisation made in HCM\u2019s bankruptcy on 22nd February 2021.\n\n 53. On 13th August 2021 US Bank\u2019s attorneys replied to HCLOF\u2019s attorneys setting out US\n Bank\u2019s reasons for considering itself entitled to retain the Redemption Proceeds.\n\n \u00a9 Royal Court of Guernsey Page 12 of 42\n\n Appx. 013\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 18 of 47 PageID 7902\n\n\n 54. On 31st August, 2021, HCLOF\u2019s Interim report and unaudited financial statements to 30th\n June 2021 were published to shareholders. They included a note to the effect that the\n Directors of HCLOF (ie Mr Boleat and Mr Burwood) were of the opinion, having taken\n advice, that US Bank\u2019s retention of the Redemption Proceeds was unlawful. This is a point\n upon which heavy reliance has been placed by CLOH in this Application.\n\n 55. On 20th October 2021, CLOH, through Ogier as its Attorneys, emailed the Directors of\n HCLOF requesting information regarding the retention of the Redemption Proceeds. On 26th\n October 2021, Carey Olsen on behalf of HCLOF, replied that US Bank\u2019s stated justification\n for such retention was threatened litigation from CLOH, and also the NexPoint Litigation, in\n which HCLOF was a named defendant.\n\n 56. On 2nd November 2021, CLOH raised with HCLOF for the first time, an issue regarding\n HCLOF\u2019s Advisory Board, its composition and the permissible functions of its members, in\n all the circumstances. Although this issue was pursued initially as a complaint, in the end, it\n has not been relied on. It is not therefore, described any further in this factual account.\n However it is an example of, and a reminder that there were yet, other matters of dispute\n being raised, and forming part of the general background picture.\n\n 57. On 10th November 2021, Mr Murphy wrote further to the Directors of HCLOF on the subject\n of US Bank\u2019s retention of the Redemption Proceeds, but he added, as a final comment, a\n question whether the Company would consider making an \u201cin-kind distribution from the\n underlying assets\u201d. He repeated this request in an email of 28th November 2021. On 3rd\n December 2021 Mr Boleat, on behalf of HCLOF rejected this request, giving various\n commercial reasons (dilution of HCLOF\u2019s power and influence as itself a holder of such\n assets; practical problems as to whether it was feasible, and concern as to provoking more\n expensive and hostile litigation by upsetting the status quo). He also pointed out that the\n retention issue could be resolved quickly if NexPoint would release its claims in the NexPoint\n Litigation, and CDAF and CLOH would confirm that they did not have any claims against\n US Bank or ACIS, as this would remove any excuse that US Bank might have for making\n any retention.\n\n 58. In the meantime, on 24th November 2021 HCLOF applied to intervene in the NexPoint\n Litigation, on the basis that NexPoint had insufficient standing, under the terms of the ACIS-\n 6 CLO, to bring any such claim, since its holding was a mere 13% and a 25% interest was\n required under the terms of the CLO itself. On 7th December 2021 the New York Federal\n Court granted this motion. The actions of HCLOF in making this intervention are asserted\n by CLOH to be detrimental to its interests as a shareholder in HCLOF, and consequently the\n reasons for this intervention have become material. This intervention has continued to be\n another main plank of CLOH\u2019s case that the business of HCLOF has been carried on in a\n manner which is unfairly prejudicial to its interests as a member of HCLOF.\n\n 59. In the meantime, again, on 1st December 2021, Mr Seery, on behalf of HCM as HCLOF\u2019s\n Portfolio Manager, wrote, at the request of HCLOF, to US Bank challenging their retention\n of the Redemption Proceeds and demanding their distribution by 15th December 2021.\n Unsurprisingly, this did not happen. The general wind-down business of HCLOF was\n continuing however, and on 16th December 2021, HCLOF\u2019s Board approved payment of a\n dividend to shareholders of \u00a315.86Mn, leaving HCLOF with cash in hand of about $15Mn.\n\n 60. On 24th December 2021, US Bank\u2019s attorneys reiterated to HCLOF its reasons for retaining\n the Redemption Proceeds and its belief that it faced a very real threat of proceedings from\n CDAF and CLOH. ACIS\u2019s attorneys wrote similarly to HCLOF maintaining that the\n retention of the Redemption Proceeds was justified both under the terms of the ACIS CLOs\n trust indentures, and as a matter of case law. At the same time, US Bank, ACIS and Mr\n Terry issued proceedings in New York, seeking declarations against CDAF, CLOH and\n\n \u00a9 Royal Court of Guernsey Page 13 of 42\n\n Appx. 014\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 19 of 47 PageID 7903\n\n\n NexPoint to the effect that none of those Defendants had any viable claims against any of the\n Plaintiffs in respect of the ACIS CLOs (\u201cthe Declaratory Action\u201d). They then wrote on\n 28th December 2021, asking CLOH and CDAF to release their threatened mismanagement\n claims so as to avoid further \u201cunnecessary\u201d litigation.\n\n 61. From HCLOF\u2019s subsequent Annual Report and Financial Statements, HCLOF\u2019s assets at 31st\n December 2021 amounted to $76Mn, including significant interests in the ACIS CLOs. Of\n this some $38Mn was cash in hand.\n\n 2022\n\n 62. On 10th January 2022 CLOH and CDAF refused to release their threatened mismanagement\n claims against US Bank, ACIS and Mr Terry.\n\n 63. On 11th January 2022, Mr Murphy wrote to HCLOF\u2019s Directors, requesting information\n about some of the matters later complained of in this Application, but also putting forward,\n once again, \u201cexit proposals\u201d that HCLOF should make an in specie distribution to CLOH, in\n satisfaction of its share entitlement. On 20th January 2022, Mr Boleat once again rejected\n this proposal.\n\n 64. On 21st March 2022, the value of the Redemption Proceeds retained by US Bank was about\n $39Mn.\n\n 65. On 12th April 2022, Ogier, on behalf of CLOH wrote what was effectively a letter before\n action to Carey Olsen, on behalf of HCLOF, setting out complaints later included in this\n Application and again making the \u201cexit proposal\u201d of an in specie distribution to CLOH, but\n also now including an alternative proposal that HCLOF should buy back CLOH\u2019s shares in\n HCLOF. On 13th April, Mr Seery wrote on behalf of HCM stating that the HCM\n shareholders did not regard these proposals as being in their best interests and they would\n not be supporting them. On 14th April, Carey Olsen replied to Ogier, refuting the various\n complaints made.\n\n 66. HCLOF\u2019s AGM took place on 19th May 2022. At the meeting, Ogier, on behalf of CLOH,\n requested the Directors to consider potential ways for CLOH to \u201cexit\u201d HCLOF.\n\n 67. Possibly arising from this, on 28th June 2022 HCLOF wrote to shareholders, including\n CLOH, making an offer to buy back shares in HCLOF pro rata at 85% of the current NAV\n of the company. HCLOF had just recently acquired cash as a result of selling its interests\n in MGM Studios equity and, whilst this was insufficient to buy back all HCLOF\u2019s\n outstanding shares, the HCM Shareholders had already informed HCLOF that they did not\n wish to take up this Share Buy Back offer. This meant that there would be sufficient cash in\n HCLOF to enable it to purchase the remaining shares, held principally by CLOH, and the\n HCM Shareholders had no objection to this.\n\n 68. However, on 7th July 2022, CLOH rejected this offer, in effect because it rejected the discount\n value of 85% of NAV being proposed. Indeed, at one point CLOH appeared to allege that\n the very making of such an offer constituted unfairly prejudicial conduct by HCLOF,\n although it is difficult to see how this could be. The assertion was eventually moderated to\n a submission that the proposal of such discount was evidence of a mindset, and a pattern of\n conduct, of HCLOF\u2019s preferring and advantaging the HCM Shareholders\u2019 interests and\n subordinating those of CLOH, which was said to support CLOH\u2019s other claims of\n demonstrable unfairly prejudicial conduct.\n\n 69. On 15th July 2022 HCLOF therefore informed shareholders that the Share Buy Back Offer\n had lapsed owing to insufficient support, and that a dividend would be paid instead. On 18th\n\n\n \u00a9 Royal Court of Guernsey Page 14 of 42\n\n Appx. 015\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 20 of 47 PageID 7904\n\n\n July it therefore declared a cash dividend to investors (paid on 22nd July), totaling some\n $22.Mn. This left HCLOF with about $15.5 Mn in cash.\n\n 70. On 9th August 2022, the New York Federal Court ruled in the NexPoint Litigation that\n NexPoint\u2019s claims were a matter of state law and were not within the jurisdiction of the\n Federal Court.\n\n 71. On 31st August 2022 CLOH provided the HCM Shareholders in HCLOF with a draft of this\n Application and the Affidavit of Mr Murphy in support. This was as an exhibit to an\n application CLOH proposed to make in the Texas Bankruptcy Proceedings (later filed on 9th\n September 2022) applying for an order recognising that HCLOF was not a protected party\n under the gatekeeper provisions, so that, therefore, these proceedings could be brought.\n\n 72. On 28th September 2022 the Texas District Court made a second finding of contempt of court\n against Mr Dondero and others, expressing itself to be satisfied from evidence that there was\n ample evidence before the State Court of Mr Dondero\u2019s control over CDAF and CLOH,\n notwithstanding the absence of his holding any formal position.\n\n 73. On 4th October 2022 NexPoint refiled a portion of its complaint against US Bank, ACIS and\n Mr Terry in the New York State Court. On 30th November 2022 HCLOF intervened in this\n litigation on the same basis as its previous intervention in the Federal case.\n\n 74. On 8th December 2022, US Bank, ACIS and HCLOF agreed a draft Settlement Agreement,\n to be held in escrow pending fulfilment of certain requirements. These requirements were\n fulfilled when the Texas Bankruptcy Court issued its decision on 27th February 2023 (referred\n to below), and this agreement therefore subsequently became the \u201c2023 Settlement\n Agreement\u201d, which has also become a major plank in CLOH\u2019s assertion of unfair prejudice.\n\n 2023\n\n 75. On 24th February 2023 HCM filed a motion in the Texas Court seeking permission to bring\n proceedings to have parties designated the \u201cDondero Entities\u201d (expressly including CDAF\n and CLOH) declared vexations litigants, and to restrain their ability to bring litigation against\n HCM and its management.\n\n 76. On 27th February 2023 the Texas Bankruptcy Court in the HCM Bankruptcy issued an order\n in favour of CLOH, confirming that HCLOF was not a protected party under the gatekeeper\n provisions, thereby permitting CLOH to commence the current proceedings against HCLOF.\n\n 77. The day after this, on 28th February 2023, HCLOF, US Bank and ACIS signed, or perhaps\n confirmed, the 2023 Settlement Agreement, and HCLOF so informed its shareholders by\n letter. The terms of the 2023 Settlement Agreement secured the release by US Bank of\n $16.5Mn worth of the retained Redemption Proceeds, which would then be free to be\n distributed to investors. However, that Agreement also included three provisions which\n CLOH now says were unfairly prejudicial to its interests as a member of HCLOF. These\n are\n\n i. Clause 4 of the 2023 Settlement Agreement whereby HCLOF agreed, upon receipt of\n the partial release of the funds being retained by US Bank, to release US Bank from\n any claims (including therefore its claim that the retention was intrinsically unlawful)\n until after final disposal of the Declaratory Action, subject only to an agreement that it\n and US Bank would meet and confer in good faith about the potential release of the\n remaining sums (Clause 4 (b) and (c));\n\n\n\n\n \u00a9 Royal Court of Guernsey Page 15 of 42\n\n Appx. 016\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 21 of 47 PageID 7905\n\n\n ii. the term at Clause 6 of that Agreement whereby the parties agreed to co-operate to\n pursue fees and costs from entities, including expressly NexPoint and itself, incurred\n in various pieces of litigation; and\n\n iii. Clause 12 (a) (ii) whereby HCLOF again agreed to procure that any transferee, assignee\n or successor to the ACIS CLOs (there called the \u201cHCLOF Notes\u201d) should not be\n affiliated in any way to CDAF, CLOH, NexPoint, Mr Dondero or any entity owned,\n controlled or affiliated with him, and also take steps to prevent either the transfer of its\n management agreement or the transfer of the HCLOF Notes, to any Dondero entity.\n\n 78. CLOH did not discover the actual terms of the 2023 Settlement Agreement until 16th May\n 2023, through its US Counsel. When it did, those terms, and the coincidence that this\n agreement appeared to have been made immediately after the order obtained by CLOH which\n enabled it to proceed against HCLOF by these proceedings, of which it had forewarned\n HCLOF in August 2022, caused Mr Murphy to conclude that this had been part of a\n deliberate plan to obstruct CLOH and its desire to \u201cexit\u201d HCLOF. HCLOF\u2019s entering into\n the 2023 Settlement Agreement, has therefore been cited as another major plank of CLOH\u2019s\n claim to have suffered unfair prejudice.\n\n 79. To bring matters finally up to date, this Application was issued on 6th March 2023. Since\n then\n\n i. On 30th March 2023, CLOH, together with CDAF filed a defence and counterclaim in\n the Declaratory Action in New York, seeking its own declaratory relief, but also\n seeking damages based on, broadly, the same allegations of misconduct regarding the\n management of the ACIS CLOs as had been the basis of the 2019/2020 Lawsuits,\n withdrawn at the time, but again raised in correspondence in April 2020, and never\n released. Their motion to join HCLOF in those New York proceedings was granted on\n 1st May 2023.\n\n ii. On 7th September 2023, NexPoint\u2019s appeal against the dismissal of its Federal litigation\n (heard in April 2023) was dismissed.\n\nThe Action and the Trial\n\n 80. CLOH\u2019s Application was launched on 6th March 2023, supported by a lengthy affidavit of\n Mr Murphy sworn on 7th March 2023. Mr Murphy swore two further affidavits on 14th March\n 2023 and 2nd June 2023, setting out the various matters which CLOH claimed were conduct\n of HCLOF which was unfairly prejudicial to it, entitling it to relief. Mr Boleat swore a\n lengthy affidavit in reply on 26th June 2023, in which he refuted CLOH\u2019s claims, explaining\n all the actions taken by him and Mr Burwood on behalf of HCLOF since his appointment,\n and making the particular point that they had taken advice from both financial experts and\n legal advice where they deemed it necessary and had had regard to such advice in forming\n their views as to what steps it was appropriate to take in HCLOF\u2019s best interests. He\n suggested that CLOH\u2019s claim seemed rather to be with regard to the appropriateness of the\n actions which the Board had taken (and with which Mr Murphy, on behalf of CLOH patently\n did not agree) rather than of any conduct which could fairly be viewed as prejudicial to the\n interests of CLOH. Mr Murphy swore his fourth affidavit in answer to some of the points\n made by Mr Boleat on 14th September 2023.\n\n 81. The hearing took place on 24th-26th and 30th October 2023. Advocate Alex Horsbrugh-Porter\n appeared for CLOH and Advocate Mark Dunster represented HCLOF. Both Mr Murphy\n and Mr Boleat gave oral evidence, and were cross-examined on their affidavits. The Court\n reserved judgment.\n\n\n\n \u00a9 Royal Court of Guernsey Page 16 of 42\n\n Appx. 017\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 22 of 47 PageID 7906\n\n\n 82. Certain parts of the evidence of Mr Boleat revealed legal advice which had been given to\n HCLOF in the context of litigation against third parties, and also certain financial\n information. HCLOF wished to waive privilege in such advice for the purpose of these legal\n proceedings only, and clearly the advice and information was reasonably regarded as\n commercially sensitive. Consequently, the Court permitted such sensitive information to be\n redacted out of those parts of the evidence which might be in the public domain and made\n privacy orders in respect of unredacted evidence. It also directed the hearing to go into\n camera when such parts of the evidence were being dealt with, and it has ordered that those\n parts of both the evidence and the hearing transcript should be separated in the court records\n and should be sealed.\n\n 83. It has already been observed that the matters relied on by CLOH have changed and developed\n over the course of the proceedings. Even with a semi-agreed list of issues of 19th September\n 2023, made five weeks before the hearing as directed by the court, several such issues were\n then not pursued at the hearing. At the same time, Advocate Horsbrugh-Porter raised points\n which Advocate Dunster complained were newly raised issues, although since they were\n either points of law, or arose out of the evidence given, this was not necessarily\n impermissible, fundamentally. Advocate Dunster has complained, though, that this\n chopping and changing of issues relied on has made it difficult to understand the case which\n his client was expected to meet. He also suggests that it demonstrates the weakness of\n CLOH\u2019s case. Advocate Horsbrugh-Porter says that this evolution has simply been the\n product of events moving on, and his client\u2019s having discovered, or been subjected to, yet\n more matters which they perceive as unfair prejudice.\n\n 84. By the time of the hearing the matters identified by CLOH as being those upon which it relied\n as conduct of the affairs of HCLOF which was unfairly prejudicial to its interests as a member\n of HCLOF were the following\n\n i. Entry into the 2021 Settlement Agreement having regard to Clauses 2 (iii), 7, and 9 and\n 10 thereof;\n\n ii. Entry into the 2023 Settlement Agreement having regard to Clauses 4, 6 and 12 thereof;\n\n iii. (Possibly) failing to inform CLOH that it was negotiating the above Agreements;\n\n iv. Intervening in the NexPoint Litigation; coupled with\n\n v. Failure to sue US Bank to obtain the retained Redemption Proceeds, when their\n retention was recognised to be unlawful;\n\n vi. Continuing to use HCM as effective Portfolio Manager when HCLOF\u2019s business was\n in \u201cwind-down\u201d mode, thereby incurring the unnecessarily high fees payable out of\n HCLOF\u2019s funds.\n\n In closing speeches, however, Advocate Horsbrugh-Porter only pressed items (i), (ii), (iv), and\n (v). These will be considered later. It is convenient now, though, to consider the law.\n\nThe legal framework\n\n 85. By way of background, the power of the court to grant relief in a case of the \u201cunfairly\n prejudicial conduct\u201d of a company\u2019s affairs under ss 349 and 350 of the Companies Law is\n entirely statutory. It was adopted into Guernsey law from the company law of England and\n Wales, where it was introduced in its present form by s 75 of the English Companies Act\n 1980, after the language of an earlier attempt to provide such a remedy (in s 210 of the\n\n\n\n \u00a9 Royal Court of Guernsey Page 17 of 42\n\n Appx. 018\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 23 of 47 PageID 7907\n\n\n Companies Act 1948, which used the word \u201coppressive\u201d) had been found to be construed too\n restrictively by the courts.\n\n 86. The jurisdiction was introduced to alleviate injustices faced by minority shareholders who\n felt that the company\u2019s affairs were being conducted in a manner detrimental to them, but for\n whom other means of redress were highly unsatisfactory. If they could allege that the\n conduct of which they complained constituted a wrong to the company itself, but that the\n company could not, or would not, take action because the alleged wrongdoers were in control\n of the company, they could seek permission to bring a \u201cderivative action\u201d, whereby they\n were authorised to use the company\u2019s name to pursue the claim. However, that route was\n cumbersome and could only bring the relief which the company itself might be entitled to.\n The only alternative was to seek a \u201cjust and equitable\u201d winding up of the company, but that\n was a \u201cnuclear\u201d option, and was likely to cause considerable damage and depletion to the\n company\u2019s value, and hence the value of their own interests, on any basis. The statutory\n power was therefore introduced to provide a very wide and flexible discretionary remedy,\n which could be adapted to fit the merits of any particular case.\n\nEssence of conduct which can be \u201cunfairly prejudicial\u201d\n\n 87. However, that jurisdiction had to be reconciled with the general principles of company law,\n which dictate that the company is a construct whose affairs are governed by the agreements\n constituted, basically, by the company\u2019s articles of association, those being the terms upon\n which its shareholders have agreed to create it. The jurisdiction is not simply a jurisdiction\n to remedy any perceived grievance which may be advanced by a member or members of a\n company. The limits arising from such reconciliation are apparent, therefore, in three\n particular aspects of the statutory power:\n\n i. It is the conduct of the affairs of the company which founds the jurisdiction, not the\n conduct of any particular member (unless that conduct does, in fact, constitute conduct\n of the affairs of the company itself);\n\n ii. The jurisdiction is to grant relief on the grounds that the affairs of the company are\n being or have been conducted in a manner which is not merely \u201cprejudicial\u201d to the\n interests of the \u201cmembers generally\u201d (ie, the company as a whole) or to \u201ca part of the\n members including [the complainant]\u201d; the relevant conduct has to be \u201cunfairly\n prejudicial\u201d (emphasis added). This recognises the fact that there is an intrinsic\n prejudice in the very position of a minority shareholder, in that such a shareholder\u2019s\n wishes or interests may be overruled by the majority, whether directly by force of\n numbers, or indirectly through the majority\u2019s ability to appoint directors more attuned\n to their own views. That situation is not unfairly prejudicial, because it is inherent in\n the structure of the company to which the minority shareholder has subscribed. It only\n becomes unfairly prejudicial if that power is exercised in some way which goes outside\n the boundaries of what can be seen as properly inherent in the agreement which the\n complaining member has subscribed to.\n\n iii. The \u201cunfair prejudice\u201d must have been suffered to the interests of the complainant as\n a member of the company. This limitation is implicit in the words of the statutory\n provision. If the prejudice is suffered only to some other interest of the complainant,\n which cannot be seen to be part of his interests as a member of the company, then relief\n under the statutory power is not available. The interests of a member of a company\n are linked, of course, to the value of his share-holding, but are essentially his right to\n have the company (in whose enterprise he has a financial interest) administered and\n managed properly in the best financial interests of the enterprise as a whole.\n\n\n\n\n \u00a9 Royal Court of Guernsey Page 18 of 42\n\n Appx. 019\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 24 of 47 PageID 7908\n\n\n It is also to be observed that the formulation of s 349 provides the court with jurisdiction\n in three distinguishable situations. The first is that the prejudice has been suffered by\n the whole undertaking of the company, and the complainant complains as a\n representative of the whole company. The second is that the prejudice has been\n suffered by some part of the membership, and the complainant complains as a\n representative of that part. The third is that the prejudice has been suffered by a \u201cpart\u201d\n of the membership comprising solely the complainant. That ultimate reduction renders\n the complaint effectively an individual one. But whatever the situation, the relevant\n prejudice must be seen to be being (or have been) suffered to the complainant\u2019s\n interests as a member of the company, and not in some other interest.\n\n 88. The parties are broadly in agreement as to the above principles. Their differences are as to\n their true extent, and/or their application. It is therefore important to keep in mind the legal\n framework of the \u201cunfair prejudice\u201d jurisdiction which CLOH seeks to invoke when\n considering the facts of the case.\n\n 89. As the Guernsey provision has been imported from English law, with the wording of s 349\n (1) the Companies Law being identical with that of (now) s 994 of the English Companies\n Act 2006, and with there being little Guernsey law on the application of the relevant\n principles, it is accepted that Guernsey law will regard English authorities on the topic as\n highly persuasive: see Prodefin Trading Ltd v Midland Resources Holding Ltd and others\n (Royal Court Judgment 7/2017). Collas B there (at [55]-[56]) discussed the applicable\n principles of English law, and approved a succinct expression of the three points noted in\n Para [87] above, as stated in Apex Global Management Limited v Fi Call Limited [2015]\n EWHC 3239 (Ch) per Hildyard J at [37], as being a correct expression of Guernsey law.\n\n 90. In their submissions on the correct interpretation of these principles, both Advocates start\n from the Privy Council case of O\u2019Neill v Phillips [1999] 1 WLR 1092, which is now regarded\n as the leading authority in England and Wales.\n\n 91. At 1098D and onwards, Lord Hoffmann said\n\n \u201cIn section 459 [as it then was] Parliament has chosen fairness as the criterion by\n which the court must decide whether it has jurisdiction to grant relief\u2026.. But this does\n not mean that the court can do whatever the individual judge happens to think fair.\n The concept of fairness must be applied judicially and the content which it is given by\n the courts must be based on rational principles. ....\n\n \u201cAlthough fairness is a notion which can be applied to all kinds of activities, its content\n will depend upon the context in which it is being used. Conduct which is perfectly fair\n between competing businessmen may not be fair between members of a family. In\n some sports it may require, at best, observance of the rules, in others (\u2018it\u2019s not cricket\u2019)\n it may maybe unfair to take advantage of them. All is said to be fair in love and war.\n So the context and backgrounds are very important.\u201d\n\n \u201cIn the case of section 459 the background has the following two features. First, a\n company is an association of persons for an economic purpose, usually entered into\n with legal advice and some degree of formality. The terms of the association are\n contained in articles of association and sometimes in collateral agreements between\n the shareholders. Thus the manner in which the affairs of the company may be\n conducted is closely regulated by rules to which the shareholders have agreed.\n Secondly company law has developed seamlessly from the law of partnership, which\n was treated by equity \u2026 as a contract of good faith. One of the traditional roles of\n equity, as a separate jurisdiction, was to restrain the exercise of strict legal rights in\n\n\n \u00a9 Royal Court of Guernsey Page 19 of 42\n\n Appx. 020\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 25 of 47 PageID 7909\n\n\n certain relationships in which it considered this would be contrary to good faith. These\n principles have, with appropriate modification, been carried over into company law.\n\n \u201cThe first of these two features leads to the conclusion that a member of a company\n will not ordinarily be entitled to complain of unfairness unless there has been some\n breach of the terms on which he agreed that the affairs of the company should be\n conducted. But the second leads to the conclusion that there will be cases in which\n equitable considerations make it unfair for those conducting the affairs of the company\n to rely upon their strict legal powers. Thus unfairness may consist in a breach of the\n rules or in using the rules in a manner which equity would regard as contrary to good\n faith\u201d.\n\n 92. Lord Hoffmann also referred back to his previous observations in In Re Saul D Harrison &\n Sons PLC [1994] BCC 475, to similar effect, at [488]:\n\n \u201cIn deciding what is fair or unfair for the purposes of s 459, it is important to have in\n mind that fairness is being used in the context of a commercial relationship. The\n articles of association are just what their name implies: the contractual terms which\n govern the relationships of the shareholders with the company and each other. They\n determine the powers of the board and the company in general meeting and everyone\n who becomes a member of a company is taken to have agreed to them. Since keeping\n promises and honouring agreements is probably the most important element of\n commercial fairness, the starting point in any case under s 450 will be to ask whether\n the conduct of which the shareholder complains was in accordance with the articles of\n association. The answer to this question often turns on the fact that the powers which\n the shareholders have entrusted to the board are fiduciary powers, which must be\n exercised for the benefit of the company as a whole. If the board act for some ulterior\n purpose, they step outside the terms of the bargain between the shareholders and the\n company. Although one begins with the articles and the powers of the board, a finding\n that conduct was not in accordance with the articles does not necessarily mean that it\n was unfair, still less that the court will exercise its discretion to grant relief. There is\n often sound sense in the rule in Foss v Harbottle. Not only may conduct be technically\n unlawful without being unfair, it can also be unfair without being unlawful. In a\n commercial context this may at first seem surprising. How can it be unfair to act in\n accordance with what the parties have agreed? As a general rule, it is not. But there\n are cases in which the letter of the articles does not fully reflect the understandings\n upon which the shareholders are associated.\u201d\n\n 93. Thus \u2013 and the Advocates both agree on this \u2013 the starting point in judging whether conduct\n is \u201cunfairly prejudicial\u201d to the interests of any member is the agreement documents which\n govern his or its relationship with the company and with the other members. Here, that is\n the Articles of Association of HCLOF and the Members\u2019 Agreement, both set up in\n November 2017.\n\n 94. The difference between the Advocates is that on behalf of HCLOF, Advocate Dunster\n submits that those documents are not merely the starting point but also the finishing point of\n the enquiry whereas Advocate Horsbrugh-Porter for CLOH submits that it is not that cut and\n dried.\n\n Applicant\u2019s submissions\n\n 95. Advocate Horsbrugh-Porter on behalf of CLO makes a two-fold submission. He submits,\n first, that there has in fact been a breach of the governing agreements. He relies on Clause\n 20.5 of the Members\u2019 Agreement, (see above) which obliges HCLOF to act \u201cin good faith\u201d\n towards the other parties such as CLOH.\n\n \u00a9 Royal Court of Guernsey Page 20 of 42\n\n Appx. 021\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 26 of 47 PageID 7910\n\n\n 96. Unsurprisingly, Advocate Dunster was emphatic that Advocate Horsbrugh-Porter should\n state clearly whether he was alleging bad faith on the part of HCLOF and, specifically, Mr\n Boleat as the relevant human agent. This would of course, be a serious allegation to make\n against a professional person. Advocate Horsbrugh-Porter was emphatic that he was not\n alleging bad faith against Mr Boleat, but also that he did not need to. He submitted that a\n \u201cgood faith\u201d clause, such as this, could be breached in two ways; the first was by a party\n acting dishonestly, but the second was by a party acting in a way which would\n\n \u201cbe regarded as commercially unacceptable by reasonable and honest people\u201d\n\n even if not dishonest, citing Re Compound Photonics Group Ltd [2022] EWCA Civ 1371 at\n [241]. Such a test was objective: see per Slade J in Re Noble & Sons (Clothing) Ltd [1983]\n BCLC 273 at 290f-291a, proposing that the test was\n\n \u201cwhether a reasonable bystander observing the consequences of [the directors\u2019]\n conduct would regard it as having unfairly prejudiced the petitioner\u2019s interests.\u201d\n\n 97. It was not, therefore (he submitted) necessary that the conduct under examination should\n have been accompanied by dishonesty, or even a conscious malevolent intent or ulterior\n motive, which were the ingredients of bad faith. It was merely necessary for the court to\n look at the actions complained of and conclude that reasonable and honest people would\n regard them as commercially unacceptable, even if the actual parties had taken such actions\n in a subjectively innocent way. Such a finding was perfectly possible, therefore, even if \u2013 as\n he did accept \u2013 Mr Boleat had acted honestly.\n\n 98. His second, alternative, submission was that this was a case in which equitable\n considerations, and hence constraints on the actions of HCLOF in the interests of fairness,\n did come into play. He emphasised that the cases did not lay down that this could never\n arise in the context of a purely commercial agreement, but only that this was the \u201cgeneral\n rule\u201d. The general proposition therefore admitted exceptions, dependent on the case itself,\n as was recognised by Arden J in Re BSB Holdings Ltd 1996 1 BCLC 155 ChD at 245. He\n submitted that the highly unusual circumstances of this case, which he urged could be\n described as \u201cunique\u201d, were such as to impose equitable constraints on HCLOF which\n amounted to a duty not to take actions which would hinder the ability of CLOH to \u201creceive\n the Redemption Proceeds [this apparently meaning its substantial share of the sums being\n retained by US Bank] via any available avenue\u201d. It could be seen that this had been\n breached, by the individual matters of complaint raised, or by an overarching view of them\n in combination.\n\n 99. The unusual circumstances giving rise to this equitable constraint were, he submitted, the\n facts that\n\n i. HCLOF\u2019s business was now, and had been since April 2020, in \u201cwind-down\u201d mode\n rather than conducting active business;\n\n ii. the sums being withheld by US Bank were part of the assets which ought to be\n distributed to HCLOF\u2019s shareholders, including CLOH;\n\n iii. HCLOF had at all times been of the view that such withholding was unlawful;\n\n iv. the existence of the multi-faceted litigation between \u201cDondero Entities\u201d and \u201cTerry\n Entities\u201d in the United States, in which ACIS was one of the latter and CLOH was one\n of the former;\n\n\n\n\n \u00a9 Royal Court of Guernsey Page 21 of 42\n\n Appx. 022\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 27 of 47 PageID 7911\n\n\n v. Mr Terry had told Mr Boleat that ACIS and US Bank were considering withholding\n reserves before HCLOF entered into the 2021 Settlement Agreement; and\n\n vi. the Members\u2019 Agreement did not contemplate protracted litigation being on foot after\n HCLOF\u2019s ivestment period came to an end in April 2020.\n\n 100. He submitted, therefore, that there was no specific contractual machinery dealing with the\n present situation. In particular such matters as the entering into of the 2021 Settlement\n Agreement, intervening in third party litigation, and the unanticipated position in general,\n created a situation in which equitable considerations could (and did) arise, so as to affect\n and constrain the company\u2019s exercise of any legal powers apparently conferred by the\n contractual documents. With the test for whether such constraints ought fairly to be\n observed being focused on the consequences of the company\u2019s actions (see the citation from\n Re Noble (above)), and the motivations or state of mind of the directors therefore being\n irrelevant, he submitted that it could be seen that the conduct of which complaint was made\n here could and did fall within the scope of \u201cunfairly prejudicial\u201d conduct.\n\n Respondent\u2019s submissions\n\n 101. Advocate Dunster, on the other hand, submits that, really, the only question is the plain and\n simple one: has there been a breach of the contractual terms governing the relationship\n between HCLOF and CLOH? There is no room for equitable considerations in the present\n situation, and since (he submits) there plainly, on examination, has been no such breach,\n there has been no unfairly prejudicial conduct, that is really the end of the case.\n\n 102. He accepts that there are, of course, instances in which equitable considerations can arise,\n and form a constraint on the directors\u2019 exercise of powers which they might strictly have\n under the company\u2019s constitution, but he submits that the cases make it clear that that is not\n the norm, and it is particularly unlikely to occur where agreements have been drawn up,\n formally and obviously with legal advice, with an entirely commercial objective, and\n between sophisticated parties. He cites, the recent case of Re Hut Group Ltd [2021] EWCA\n Civ 904, in which David Richards LJ (as he then was) expressed the position as follows at\n [9]:\n\n \u201c\u2026 the terms on which a member agreed that the affairs of the company should be\n conducted will usually be found in the articles of association, any shareholders\u2019\n agreements, the fiduciary (now statutory [in the UK]) duties of directors and the\n principles of law which limit the power of a majority of members to bind the minority\n by resolution in general meeting. There may be cases, such as those discussed by Lord\n Wilberforce in Re Westbourne Galleries Ltd [1973] AC 360 at 379, where the\n particular circumstances of the case, normally involving the personal relations\n between members of a small company, may subject the exercise of legal powers to\n equitable restrictions going beyond the articles, agreements and rules of law.\n However, such cases are not the norm. As Lord Wilberforce said, the company\n structure \u201cis defined by the Companies Act and by the articles of association by which\n shareholders agree to be bound. In most companies and in most contexts, this\n definition is sufficient and exhaustive, equally, so whether the company is large or\n small.\u201d\n\n The court rejected the proposition that the application of equitable considerations such as\n discussed by Lord Wilberforce was called for in that case, (at [10]) because\n\n \u201c\u2026 The relationship between all the parties has at all times been entirely commercial,\n as evidenced by the detailed and complex provisions, including those for the protection\n\n\n\n \u00a9 Royal Court of Guernsey Page 22 of 42\n\n Appx. 023\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 28 of 47 PageID 7912\n\n\n of members\u2019 interests, contained in the company\u2019s articles and in the shareholders\u2019\n agreement to which [the applicant] acceded when it became a shareholder.\u201d\n\n 103. Advocate Dunster submits that that is precisely the position in this case. The relations\n between HCLOF and its shareholders have always been entirely commercial, and are to be\n treated, therefore, as governed by the commercial agreements which they have entered into.\n There is no room for equitable considerations to modify these where, as here, there are\n comprehensive professionally-drafted company documents, executed between sophisticated\n parties whose intentions are entirely commercial. Unless, therefore the court finds some\n breach of the terms of those documents the Application must fail for that reason, and he\n submits that the evidence shows quite clearly that it cannot \u2013 as he submits is rather\n underlined by the lengths which CLOH has had to go to, chopping and changing its\n complaints, in order to try, unsuccessfully, to construct one.\n\n 104. The circumstances cited by Advocate Horsbrugh-Porter did not (he submitted) make the\n situation unusual or unique so as to somehow affect, change, overturn or abrogate the\n parties\u2019 contractual agreements, just because they might not have been expected.\n\n 105. He criticises Advocate Horsbrugh-Porter\u2019s attempt to construct a breach of the \u201cgood faith\u201d\n clause as something of a contortion. He submits that there can be no breach of a duty to \u201cact\n in good faith\u201d, other than by acting in bad faith \u2013 a charge which Advocate Horsbrugh-Porter\n expressly disavows \u2013 and one cannot get away from that. In the quotation from Compound\n Photonics (above) the court was saying that \u201cbad faith\u201d could take two forms: dishonesty or\n behaving in a way which was commercially unacceptable to honest and reasonable people,\n but the latter was still bad faith; it was not something different. There is no middle ground\n between bad faith and good faith, as being some sort of lack of good faith which could give\n rise to a breach of a good faith clause without being itself bad faith.\n\n 106. He further relies on dicta in Re Corion Ltd [2013] EWCA Civ 781, at [51], that a general\n term of an obligation to act in good faith cannot in itself impose an obligation to \u201cact in a\n manner outside the terms of the ... agreement\u201d, and that a duty of good faith should not cut\n across other express contractual rights: see TSG Building Services plc v South Anglia\n Housing Ltd [2013] EWHC 1151 (TCC) at [51].\n\n Discussion\n\n 107. The issue here is whether, in the present situation, any question of unfair prejudicial conduct\n necessarily requires there to have been some breach of the agreements which contractually\n govern the relations between HCLOF and CLOH (and if so whether there has been such a\n breach) or whether equitable principles have any supervening application. This is a matter\n of law. On these points the Lt-Bailiff unhesitatingly prefers Advocate Dunster\u2019s submissions\n to those of Advocate Horsbrugh-Porter.\n\n 108. As regards the first question, the only term of the contractual documents which Advocate\n Horsbrugh-Porter relies on as having been breached is the \u201cduty to act in good faith\u201d clause\n at Clause 20.5 of the Members\u2019 Agreement. As to this, the Lt-Bailiff accepts Advocate\n Dunster\u2019s submission, first, that there is no conceptual space where actions can be a breach\n of a duty to act in good faith but simultaneously not amount to bad faith. Actions are either\n the one or the other, albeit the mental element \u2013 and there must be one \u2013 may not amount to\n actual dishonesty. It is in fact difficult to see how performing a contract strictly according\n to its terms could ever amount to bad faith (except possibly where the party asserting that it\n was doing so knew or seriously suspected that the counterparty had contracted under a\n mistake about the effect of the relevant term, which is not this case and is very far from it).\n\n\n\n\n \u00a9 Royal Court of Guernsey Page 23 of 42\n\n Appx. 024\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 29 of 47 PageID 7913\n\n\n 109. As to Advocate Horsbrugh-Porter\u2019s second, alternative, contention, the Lt-Bailiff again\n accepts Advocate Dunster\u2019s submission that there is really no room for equitable\n considerations to modify or constrain a party\u2019s reliance on its powers and rights embodied\n in the express terms of the relevant contracts where the context is a commercial relationship,\n and the contractual documents are carefully drawn, no doubt after negotiation, clearly with\n legal advice, and made between commercially sophisticated parties. These contractual\n documents are, the court finds, plainly within that class.\n\n 110. The Lt-Bailiff holds that the fact that the ensuing circumstances may not have been\n anticipated as the context in which these contractual documents would be operated is just\n not relevant. Parties make contracts in order to lay down the principle of the terms which\n are to govern their relations in the future, and the future is inevitably uncertain. Each\n accepts, therefore, that those principles will apply to the future position even if, and very\n possibly even because, that is not certain and not certainly predictable, in itself. In the\n event, those principles may turn out to be more to the liking or advantage of one side than\n the other, but in the interests of securing their initial bargain, the parties accept that degree\n of uncertainty as to the particular result. Unless the singular degree of unusualness about\n any future situation is sufficient to frustrate the contract \u2013 a very high threshold \u2013 the parties\n are taken to accept that the principles they have laid down will apply to their relevant rights\n and obligations in any future situation, for better or worse, and there is no half way house\n where \u201cequity\u201d can be called on to intervene to modify that result.\n\n 111. In any event, the Lt-Bailiff holds that none of the features of the matter cited by Advocate\n Horsbrugh-Porter in support of his argument that the situation here is so unexpected or\n \u201cunique\u201d as to justify the imposition of equitable considerations ex post facto, comes\n anywhere near justification for such an argument. It is by no means unpredictable, or even\n out of the norm, for a company to get embroiled in legal proceedings, whether directly itself,\n or through being sucked into proceedings involving its affiliates or associates. Even if the\n intensity of such hostile proceedings is remarkable, that makes no difference in principle.\n There is no reason why decisions as to the actions best undertaken in the company\u2019s best\n interests in the context of litigation should not be regarded as another matter for the business\n judgment of the company\u2019s directors, just like any other decision as to the conduct of the\n company\u2019s affairs. On analysis, that is all that has happened here, and CLOH\u2019s complaint\n then simply becomes an allegation of bad business judgment, or, more accurately perhaps,\n of a business judgment with which it does not agree.\n\n 112. In addition, it is apparent from the authorities that the features which have caused the courts\n to hold that equitable considerations do have a place in governing the controlling parties\u2019\n conduct of the affairs of a company have been matters which applied or arose at the time of\n the creation of the corporate relations between the parties. They thus underlay such\n agreements and implicitly formed part of the agreement between the parties, but were simply\n not expressed in the documents (see the quotation from Hoffmann LJ, as he then was, in Re\n Saul D Harrison (above)). Examples are understandings that all participators should share\n in management decisions, making it unfairly prejudicial for one faction to oust the\n participation of another, or understandings that profits should be shared by the mechanism\n of dividends such that it was unfair for a majority faction subsequently to vote itself\n disproportionate remuneration by way of salary. None of the factors cited in this case is in\n any way rooted in any such underlying understanding between the parties (in particular,\n CLOH and HCLOF) because they had no such pre-existing relationship to give rise to it.\n The framework for their relationship was created, apparently entirely for commercial\n reasons and on an arm\u2019s length basis, by the transactions in November 2017.\n\n 113. The Lt-Bailiff accepts that there will not be an absolutely rigid rule that there could \u201cnever\u201d\n be a situation in which equitable principles could be invoked in the interpretation of\n behaviour under a purely commercial corporate relationship. However, that possibility\n\n \u00a9 Royal Court of Guernsey Page 24 of 42\n\n Appx. 025\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 30 of 47 PageID 7914\n\n\n could only be in a very extreme and very rare case, which is not this case. The Lt-Bailiff is\n fortified in this view because it appears to her that admitting the influence of equitable\n principles in determining any particular case is tantamount to implying a term into the\n contractual documents that such an interpretation should apply. The conditions for\n implying terms into formally drafted contractual documents are stringent; they effectively\n require a finding that, on an objective basis, such a term \u201cmust have been\u201d intended by both\n parties to the agreement, see, eg Att Gen for Belize v Belize Telecom Ltd [2009] UKPC 10\n at [16] \u2013 [27]. That, again, is just not this case.\n\n 114. There are no compelling considerations for the finding of any such implication here.\n Indeed, the terms of the documents even point away from any such intention, in particular\n the general provisions of Clause 20 of the Members\u2019 Agreement, and specifically Clause\n 20.3, where the parties thought it appropriate to record, expressly, that their arrangements\n were not a partnership, and thus exclude the equitable considerations which may underlie\n partnership relations.\n\n Conclusion\n\n 115. Thus, the Lt-Bailiff has held that it is not open to CLOH to allege breach of the \u201cact in good\n faith\u201d clause whilst simultaneously disavowing any intention to allege bad faith, but it is\n also the case that that breach is the only actual breach which is alleged of the express\n contractual terms which govern the parties\u2019 relations inter se. That first ground is therefore\n dismissed as any possible basis for CLOH\u2019s claim to relief. She has also rejected Advocate\n Horsbrugh-Porter\u2019s alternative proposition that, in the circumstances of this case, there is\n scope for invoking equitable considerations as a constraint on HCLOF\u2019s exercise of its legal\n powers in support of an assertion of unfairly prejudicial conduct. Having done so, the Lt-\n Bailiff agrees with Advocate Dunster that that is really the end of the case.\n\n 116. However, in case the latter finding is wrong, and since the matter was fully examined and\n argued at the hearing the Court has gone on to examine the various matters of allegedly\n unfairly prejudicial conduct ultimately relied on by CLOH (see Para [84] above), as facts\n capable of constituting \u201cunfairly prejudicial conduct\u201d against HCLOF within the meaning\n of s 349 of the Companies Law.\n\n 117. This exercise entails looking at the consequences of such conduct rather than (as above)\n considering the nature of the conduct itself as a matter of law, in the contractual context.\n\nUnfairly prejudicial conduct \u2013 the complaints examined\n\n 118. A finding of unfairly prejudicial conduct within s 349, as the gateway for any judicial\n intervention in the company\u2019s affairs, requires findings that the conduct which is impugned\n has caused prejudice to the interests of the complainant as a member of the company, and\n that such prejudice is unfair. The first is a matter of law, the second is a matter of fact, but\n they are sufficiently intertwined that it is convenient to consider them together in relation to\n any particular complaint.\n\n 119. Before turning to this, though, it is appropriate to note legal authority as to the requirement\n that the relevant prejudice is prejudice to the \u201cinterests of the members\u201d of the company (or\n some part of them). This has been held to mean the interests of the members of the company\n as such members. Thus, if the prejudice being suffered from the conduct complained of is\n suffered to a different interest of the relevant plaintiff, not being his interest as a member of\n the company, no relief can be given.\n\n 120. By way of example, see Re J E Cade & Son Ltd [1992] BCLC 213, in which relief was\n refused because the petitioner was complaining at the family company refusing to give up\n\n\n \u00a9 Royal Court of Guernsey Page 25 of 42\n\n Appx. 026\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 31 of 47 PageID 7915\n\n\n possession of the farm of which he was the freehold owner, and in those circumstances he\n was held to be seeking to protect his interests as landlord, and not any interest of his as a\n member of the company. That case also recognises that there are limits on the court\u2019s wide\n discretion when granting relief on the basis of \u201cequitable considerations\u201d, reiterating that\n this does not mean just whatever the judge might think fair.\n\n 121. As the interests of a shareholder in a company are broadly financial, certainly where the\n shareholding is an investment, it would seem that prejudice to his interests as such\n shareholder must itself prima facie be financial detriment, and this will, clearly, normally\n be the case. It is not clear whether any other kind of prejudice could justify the court\u2019s\n intervention in a purely commercial case, ie in contrast to the cases of family, or informal,\n type arrangements noted above, where there is a broader underlying substratum of rights\n and expectations. This question was not really investigated in this case, because all the\n matters of prejudice being contended for, in the end, do appear to come down to adverse\n financial consequences, even if indirect ones.\n\n 122. However, it was noted that the cases do establish that the \u201cinterests of [the plaintiff] as a\n member of the company\u201d may be construed with some flexibility so long as such interests\n are sufficiently linked to the member\u2019s status as a shareholder in the particular case. In\n Gamlestaden Fastigheter AB v Baltic Partners Ltd [ 2007] Bus L R 1521, the UK Privy\n Council held that the interests of a member of the company could extend to encompass its\n interests as a lender to the company (ie not merely as a holder of equity, ie shares, in the\n company) where the lending had been made as part of the whole package of the\n arrangements under which the company relationship had been set up. The actual decision,\n however, was simply that it was not unarguable that a member\u2019s interests could be held to\n extend that far in such circumstances, so that the fact that there was no loss caused to the\n value of the petitioner\u2019s actual shareholding was not sufficient to enable the respondent to\n strike the claim out summarily. It was not, therefore, a final decision.\n\n 123. With that introductory comment this judgment turns to the complaints of allegedly unfairly\n prejudicial conduct of the affairs of HCLOF which are put forward by CLOH: see [84]\n above. These are taken in a convenient order for this judgment.\n\n (1) Failure to inform CLOH that it was negotiating the Settlement Agreements, and\n (2) Retention of HCM as (effective) Portfolio Manager.\n\n 124. These two complaints are items (iii) and (vi) in Advocate Horsbrugh-Porter\u2019s list. They are\n touched on first, because whilst they figured in CLOH\u2019s case up to and including the opening\n of the trial hearing, they were not pursued by Advocate Horsbrugh-Porter in his closing\n address, and were effectively treated as withdrawn.\n\n 125. For the sake of completeness, however, the court records that such abandonment must be\n right. A shareholder\u2019s entitlement to information is only to be found in the terms, either\n express or possibly implied, within the contractual documents governing the company\u2019s\n obligations in this respect, or in statute. There is no obligation, express or implied, (and\n none has been suggested) in the relevant documents in this case which would oblige the\n Directors of HCLOF to inform the shareholders, or a shareholder, about anything they were\n doing or proposing to do in their day to day management of the company\u2019s affairs, still less\n to consult any such shareholder or seek its approval. Negotiating and concluding\n agreements to further what they judge to be the promotion of the company\u2019s best interests\n falls within the scope of management decisions. Concluding a settlement of disputes or\n differences perceived to hinder the company\u2019s best interests are within this concept. The\n particular personal interests, or self-interest, of a particular shareholder, such as CLOH,\n cannot, and did not, alter that position. Of course, directors may choose to inform\n shareholders of what they are doing in any particular case, and shareholders may be grateful\n\n \u00a9 Royal Court of Guernsey Page 26 of 42\n\n Appx. 027\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 32 of 47 PageID 7916\n\n\n or gratified to receive information, but that is not the same thing as a duty on the directors\n to do so, such that a failure could be regarded as any unfair prejudice to shareholders.\n\n 126. Likewise, the retention of HCM (effectively) As the Portfolio Manager of HCLOF is a\n decision as to the running of the company\u2019s affairs which is within the scope of the\n Directors\u2019 authority. It might have been expected, intuitively, that CLOH\u2019s complaint here\n would be of an unacceptable possibility of bias, arising from the current differing allegiances\n of the two major shareholders in HCLOF - HCM and CLOH - which have been brought\n about by the events which have happened. HCM, the effective portfolio manager of\n HCLOF through HCA, is now a \u201cTerry\u201d entity, whereas CLOH remains a \u201cDondero\u201d entity.\n\n 127. However, as that was not the position at the time when the relevant contracts were entered\n into (November 2017) it is not a feature which could therefore have any implied effect on\n the intended meaning and effect of those documents, and in any event, the transactions by\n which the ownership of a majority shareholding passed away from CLOH (in fact, to\n HarbourVest entities), was the result of CLOH\u2019s own voluntary actions. There is no\n evidence as to whether or how far the HarbourVest entities were connected with the\n \u201cDondero\u201d camp, and if this status had been a matter of significance, then one would have\n expected it to have been regulated in the documents; there has been no suggestion of any\n such provision.\n\n 128. However, that is not the complaint which was in fact advanced on behalf of CLOH. CLOH\n accepts that it is quite common in the finance industry for a portfolio manager, or adviser,\n to be also an affiliate or associate of a major shareholder in the company, and that this is not\n perceived as being unacceptable or seriously objectionable, although where this relationship\n is envisaged, the Offering Memorandum will (as it does here) record that conflicts of interest\n may arise with regard to the manager\u2019s functions because of its relationship or involvement\n with other companies or entities, and that a subscriber for the shares shall have no complaint\n on this score. In this case, there are enormously extensive warnings about conflicts of\n interest on the part of the Portfolio Manager contained in the Offering Memorandum, at\n pages 37 \u2013 40. They are clearly designed to alert investors to such possibility and to forestall\n and prevent any complaints on that score.\n\n 129. The complaint which was actually pressed on behalf of CLOH was that the retention of a\n Portfolio Manager in relation to HCLOF\u2019s business, at all, was prejudicial to its members\n (including CLOH) having regard to the fact that HCLOF was now no longer actively\n investing (and had not done so since April 2020) and was in \u201cwind-down\u201d mode; the\n Portfolio Manager agreement was therefore causing excessive and unnecessary high fees to\n be charged on HCLOF\u2019s assets. In answer to this Mr Boleat on behalf of HCLOF gave\n evidence that there were still many functions relating to the management of HCLOF\u2019s\n investments, requiring the expenditure of time and effort, to be performed by the Portfolio\n Manager even if these no longer included actively seeking out or dealing with investments.\n\n 130. The Jurats accept this evidence, and it was not really challenged. Advocate Dunster also\n pointed out that it was not clear what remedy was being sought by CLOH on account of this\n complaint, but it would seem to amount to requiring HCLOF to terminate the Portfolio\n Management Agreement, even though the question whether this was legally possible had\n not been grappled with.\n\n 131. Once again, this dispute seemed to become reduced to a complaint about a management\n decision of the Directors Whether because of the above facts, or for some other reason,\n this complaint was ultimately abandoned by CLOH, and in the judgment of the Lt-Bailiff,\n this was correct.\n\nThe eventual matters of actual complaint\n\n \u00a9 Royal Court of Guernsey Page 27 of 42\n\n Appx. 028\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 33 of 47 PageID 7917\n\n\n 132. Four matters were therefore left as matter of substantive complaint pursued by CLOH as\n constituting \u201cunfair prejudice\u201d under s 349 at the end of the hearing.\n\n Preliminary point\n\n 133. In each case, the basis of the characterisation of such conduct as \u201cunfair\u201d was formulated\n by Advocate Horsbrugh-Porter, in his final submissions, by reference to his argument that\n such conduct was a breach of the good faith clause (Clause 20.5 of the Members\u2019\n Agreement), for being \u201ccommercially unacceptable to reasonable and honest people\u201d, or\n alternatively that this conduct brought into play \u201cequitable considerations\u201d of constraint on\n HCLOF which had not been observed, the reason being that the conduct in question hindered\n the ability of CLOH to get in a position to obtain the \u201cRedemption Proceeds\u201d by some\n \u201cavailable avenue\u201d.\n\n 134. The Lt-Bailiff has already dismissed these two submissions as a matter of underlying legal\n principal. It is emphasised that the consideration of the particular complaints below, as to\n whether they could amount to \u201cunfairly prejudicial\u201d conduct, is required only if that initial\n dismissal is held to be wrong.\n\n (3) Entry into the 2021 Settlement Agreement\n\n Backdrop\n\n 135. The Jurats find the situation at the time of the conclusion of the 2021 Settlement Agreement\n to be as follows, taken from the evidence in Mr Boleat\u2019s affidavit which was not really\n challenged.\n\n 136. At the time of the appointment of Mr Boleat and Mr Burwood as Directors of HCLOF in\n 2020 (with, it is to be noted, the positive support of CLOH at that time), HCLOF was being\n prevented from realising its interest in the ACIS CLOs, and distributing the proceeds to its\n investors in accordance with its objectives, by the US Court\u2019s injunction prohibiting such\n redemptions made in the ACIS Bankruptcy Plan of Reorganisation (ie Plan D) on 31st\n January 2019. This had been made at the time when ACIS had been in the \u201cTerry\u201d camp,\n and HCM in the \u201cDondero\u201d camp, although the landscape had later changed.\n\n 137. Reviewing the position, the Directors concluded that the most beneficial course for HCLOF\n - indeed Mr Boleat described it as the only commercially justifiable action - was to seek to\n achieve the lifting of the injunction. This meant reaching a settlement with ACIS to resolve\n the claims, other proceedings and other possible claims or proceedings between ACIS and\n HCLOF, and also those facing HCLOF\u2019s former Directors, whom HCLOF would be prima\n facie obliged to indemnify under their service contracts. At the same time, HCLOF was\n receiving suggestions that early 2021 was becoming an optimal moment in the market to\n redeem the ACIS CLOs. Having reassured themselves of the soundness of this approach\n by taking independent financial advice, the Directors intensified negotiations with ACIS and\n Mr Terry, through lawyers, ultimately achieving the 2021 Settlement Agreement on 28th\n April 2021.\n\n Applicant\u2019s submissions\n\n 138. It is not contended that entering into the 2021 Settlement Agreement was outside the powers\n of Mr Boleat and Mr Burwood as the duly appointed Directors of HCLOF, nor that doing\n so was not reasonably thought by them to be a step to be taken in HCLOF\u2019s best interests.\n In the light of Mr Boleat\u2019s evidence referred to above, this is really inevitable.\n\n\n\n\n \u00a9 Royal Court of Guernsey Page 28 of 42\n\n Appx. 029\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 34 of 47 PageID 7918\n\n\n 139. In the end, CLOH\u2019s objections were focused on certain terms of the 2021 Settlement\n Agreement, namely Clauses 2 (iii), 7 and 9, and in particular the first such term. Clause 2\n (iii) reads, so far as material here:\n\n \u201c\u2026.HCLOF further agrees that:\n\n \u201c(iii) any third party transferees, assignees or successors [to the HCLOF\n Subordinated Loan Notes\u201d, ie the ACIS CLOs] shall not be affiliated in any way with\n James Dondero, CLO Holdco Ltd, the Charitable DAF Fund LP or any other entities\n owned or controlled by James Dondero, including but not limited to any funds or\n entities managed by an affiliate of James Dondero\u201d.\n\n \u2022 Clause 7 provided for the dismissal \u201cwith prejudice\u201d, (ie expressly without the right to\n refile) of certain identified ACIS lawsuits against HCLOF, against HCLOF\u2019s former\n Directors, Mr William Scott and Ms Bestwick, and against HCM also within the\n various terms, against HCM.\n\n \u2022 Clause 9 provided for ACIS and Mr Terry to release, in comprehensive terms, all their\n claims against HCLOF itself, its successors, assigns, agents, advisers, and\n representatives, officers and its former Directors by name, but excluding, expressly and\n by name (although presumably for the avoidance of doubt) any such release as regarded\n CDAF, or any of its subsidiaries including CLOH, and also against Mr Dondero and\n other named persons related to or associated with Mr Dondero.\n\n \u2022 HCLOF gave similarly wide reciprocal releases in Clause 10, in favour of ACIS, Mr\n Terry, Brigade, US Bank National Association, Moody\u2019s Investor Services, the ACIS\n CLOs and others, and their respective successors, assigns agents, officers advisers and\n directors, etc.\n\n 140. In his closing submissions on behalf of CLOH Advocate Horsbrugh-Porter concentrated on\n Clause 2 (iii). He submitted that HCLOF\u2019s agreeing to this clause was prejudicial to CLOH\n because it prevented HCLOF from making an in specie distribution of the ACIS CLOs to\n CLOH \u201cas a shareholder\u201d, thus preventing a valuable \u201cexit\u201d route from the company for\n CLOH (ie by the implementation of such an in specie distribution, as CLOH has been\n pressing for) and consequently prejudicing CLOH by preventing it from subsequently taking\n direct action against US Bank, after such an in specie distribution had been effected -\n presumably through locus standi gained through then being the direct holder of some ACIS\n CLO Notes.\n\n 141. CLOH\u2019s primary contention was that this clause was an unnecessary clause to put in the\n 2021 Settlement Agreement, having regard to its purpose and its machinery. It was even,\n apparently, submitted that this lack of necessity suggested that its inclusion must have been\n prompted simply from a wish to damage CLOH.\n\n 142. As regards the other clauses referred to (Clauses 7 and 9 in particular) the objection appeared\n to be, that these clauses, and the specific exclusion of CLOH from the benefit of the ACIS\n releases being granted, was indicative of bias against CLOH, or favouritism of the interests\n of others rather than CLOH, and was \u201cunfairly prejudicial\u201d on this score. This last point\n was not really pressed, however, in Advocate Horsbrugh-Porter\u2019s final position.\n\n Respondent\u2019s submissions\n\n 143. Advocate Dunster submitted, first, that there was no challenge to Mr Boleat\u2019s evidence as\n to the merits and desirability of achieving the position achieved by the 2021 Settlement\n Agreement, as regards paving the way to redeem the ACIS CLOs, reducing legal costs and\n\n \u00a9 Royal Court of Guernsey Page 29 of 42\n\n Appx. 030\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 35 of 47 PageID 7919\n\n\n reducing indemnity liabilities to the former Directors, and that this was perceived by the\n Directors, and reasonably perceived, to be in the best interests of HCLOF. He also pointed\n out that, at the time of the 2021 Settlement Agreement, there had been no suggestion that\n CLOH was seeking any in specie distribution of HCLOF\u2019s assets as a means of exiting the\n fund; that suggestion was only first broached in Mr Murphy\u2019s letter of 10th November 2021.\n\n 144. Furthermore, this was not something to which CLOH had any right as a shareholder. It was\n (he submitted) even contrary to the terms of the Offering Memorandum, which stated very\n clearly that \u201cShareholders have no right to have their Shares redeemed or repurchased by\n the Company\u201d. There was therefore no reason why the Directors should have considered\n the impact of the terms of the 2021 Agreement on that possibility, still less any evidence\n that there was an intention to frustrate such possibility.\n\n 145. Mr Boleat also gave evidence that the restriction on transfers of HCLOF\u2019s assets was a\n requirement of ACIS (as to which the reasons are fairly obvious, from the circumstances)\n and were regarded by the Board as being of no practical disadvantage to HCLOF at all, not\n least because the intention at that time, was to liquidate the ACIS CLOs as quickly as\n possible, converting them into cash which would be paid back to shareholders, so that the\n possibility of an in specie distribution was theoretical only.\n\n 146. In summary, he submitted that the evidence shows that none of the Clauses complained\n about infringed any contractual right of CLOH; it could be seen that Clauses 7 and 9, did\n not infringe any right of CLOH, but benefitted HCLOF generally and also because they\n released claims against other parties, as to which HCLOF could have become liable on\n contractual indemnities. The whole 2021 Settlement Agreement plainly benefited HCLOF\n and, more importantly was reasonably and honestly seen by the Directors to do so. The\n effects of the 2021 Settlement Agreement therefore could not be the basis for any viable\n submission that the conduct by which it was obtained amounted to conduct which was\n unfairly prejudicial to the interests of the members of HCLOF in general, or CLOH in\n particular, as such a member.\n\n Discussion and conclusion\n\n 147. The first consideration is whether Clause 2 (iii) could be said to prejudice CLOH\u2019s rights as\n a member of the company. Advocate Dunster argues that it cannot, because it only\n prejudices the possibility of CLOH ever gaining direct title to the ACIS CLOs, and this is\n not a right that CLOH ever had, as a shareholder of HCLOF at all.\n\n 148. The Lt-Bailiff agrees. She accepts Advocate Dunster\u2019s argument noted above at [144],\n although it does appear to depend somewhat on the phrase \u201credeemed or repurchased\u201d being\n capable of encompassing a surrender of shares in return for an in specie distribution of ACIS\n CLOs, rather than for cash; the Offering Memorandum seems, rather, to be ruling out\n CLOH\u2019s alternative proposal of a buyback. However, the Lt-Bailiff does accept that it is\n fair to say that an in specie distribution of HCLOF\u2019s investments appears to be outside the\n contemplation of the Offering Memorandum. The point that CLOH has never enjoyed any\n right as a shareholder to be able to acquire the underlying assets of HCLOF is a strong one.\n\n 149. The final submissions of Advocate Horsbrugh-Porter, describing the detrimental effects on\n it of which CLOH complains (see [140] above) show that the prejudice which CLOH\n perceives it has suffered is, really, to the prospect of getting itself into a position to pursue\n mismanagement claims against ACIS (and possibly Mr Terry) through being the actual\n direct owner of ACIS CLOs. However, the preservation of the opportunity for a\n shareholder to acquire an interest which will provide a means of leveraging a dispute with a\n third party is not, in the Lt-Bailiff\u2019s judgment, a prejudice suffered in connection with its\n interests as a member of the company.\n\n \u00a9 Royal Court of Guernsey Page 30 of 42\n\n Appx. 031\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 36 of 47 PageID 7920\n\n\n 150. The Lt-Bailiff felt, at times, that Advocate Horsbrugh-Porter\u2019s argument appeared to be\n tantamount to a submission that the Directors of HCLOF owed a duty to act evenhandedly\n between shareholders - obviously, in particular, CLOH and HCM, bearing in mind that their\n respective personal positions had by then come into conflict with each other within the wider\n landscape of interests and disputes between \u201cDondero\u201d and \u201cTerry\u201d entities. It appeared to\n be being suggested that there was an unacceptable element of bias in their actions,\n exemplified by Clause 2(iii) of the 2021 Settlement Agreement, which expressly singled out\n CLOH (though amongst others) for disadvantageous treatment not meted out to HCM, and\n Clause 9 which, again expressly singled out CLOH and its affiliates for emphatically not\n being accorded the benefit of the \u201cACIS Releases\u201d.\n\n 151. The Lt-Bailiff rejects any such implicit submission. It contends for a parallel with the duties\n of trustees to act even-handedly between beneficiaries, but the situation here is entirely\n different. The fiduciary duty of company directors is to act in the best interests of the\n company as a whole - in effect, its enterprise, although this is conveniently described as a\n duty owed to the impersonal \u201cgeneral body of shareholders\u201d. It is no part of a company\n director\u2019s general duties to consider or take account of the personal interests or\n circumstances of particular shareholders when considering the general question, what is in\n the best interests of the company, in general? In fact, any such proposition would be entirely\n unworkable in practice. Considering the best interests of one individual shareholder or set\n of such shareholders and any attempt to further, or not damage, these, would almost\n inevitably lead to a failure to do the same as regards the interests of another shareholder or\n set of shareholders. It would also, in any event, be all too likely to put directors in an\n impossible position of conflict of interest.\n\n 152. As regards the submission that the clause was \u201cunnecessary\u201d the Lt-Bailiff considers this to\n be entirely beside the point. Once it is accepted (as is Mr Boleat\u2019s unchallenged evidence)\n that Clause 2(iii) was a provision which was sought and required by ACIS, the question for\n the Directors was then simply whether, taking the balance of advantage and disadvantage,\n agreeing to its inclusion was in the best interests of HCLOF with a view to achieving the\n most beneficial position for it overall. That is a matter of business judgement, and is a\n decision quite well within the ambit of what would be a reasonable decision in the\n circumstances.\n\n 153. The Lt-Bailiff therefore rejects this argument of unfair prejudice, on the grounds that, as\n formulated by Advocate Horsbrugh-Porter, it does not disclose any prejudice to the interests\n of members of HCLOF, or to a part of such membership including CLOH, as members of\n the company.\n\n 154. For completeness though, but also to illustrate the distinction between the interests of CLOH\n personally and the interests of CLOH as a member of HCLOF, the Lt-Bailiff notes that it\n might be possible to discern some prejudice in the latter capacity, on the basis of the\n following analysis.\n\n 155. In agreeing to the restriction on transferees laid down in Clause 2(iii), the Directors did, in\n effect, fetter their discretion as to the persons to whom they would consider selling the ACIS\n CLO Notes owned by HCLOF. They thereby limited the market for the disposal of such\n CLO Notes. If they were ever to sell those CLO Notes, they would, in the normal case,\n expect to sell to the highest bidder, but would now do so in that restricted market. They\n would thereby prevent HCLOF, and by extension its shareholders, from gaining the possible\n increased financial benefit (a higher payment for the relevant CLOs) which might be\n obtainable from any of the excluded parties as a potential special purchaser of such Notes,\n because of a perceived collateral advantage in making such purchase (as demonstrated by\n Advocate Horsbrugh-Porter\u2019s argument). Thus, this limiting of the market could be argued\n\n\n \u00a9 Royal Court of Guernsey Page 31 of 42\n\n Appx. 032\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 37 of 47 PageID 7921\n\n\n to have created a prejudice to the members of HCLOF generally, by potentially reducing the\n realisable value of their interests.\n\n 156. Mr Boleat\u2019s evidence was that the restriction did not appear to the Directors to affect\n HCLOF materially because once the instruction had been given to liquidate the CLOs, as\n the Directors intended, those CLOs would have no assets in them and would be valueless.\n Thus, this particular point does not appear to have been considered.\n\n 157. However, the Lt-Bailiff does not consider that this arguable shortcoming would make any\n difference to the ultimate position here (and she therefore did not think it necessary to ask\n for any further argument from the parties upon it) for the following reasons.\n\n 158. First, the analysis that such prejudice actually occurred is highly speculative; it owes more\n to theory than to any reality in evidential fact. Second, this is backed up by the fact that\n CLOH apparently did not perceive this prejudice (ie the potential forgoing of an element of\n value in HCLOF\u2019s underlying assets) as actually occasioning any damage to its (CLOH\u2019s)\n interests at all, because it never raised this point, whilst making very many others of greater\n or lesser substance. Third, Clause 2(iii) was not entered into in isolation but as part of a\n package deal contained in the whole of the 2021 Settlement Agreement and the question\n whether any potential prejudice caused by Clause 2 (iii) was adequately compensated by the\n benefits of other aspects of the whole package was a matter for the business judgment of\n HCLOF\u2019s Directors. To decide to accept this clause was, in the Lt-Bailiff\u2019s judgment, prima\n facie well within the ambit of an objectively reasonable business judgement by directors of\n HCLOF in all the complicated set of circumstances pertaining, even if the Directors\n themselves had not directly evaluated this particular point. The company itself could not\n have raised any complaint (see Carlyle Capital Corporation Ltd v Conway (2017) Royal\n Court Judgment 38/2017 at [393] and [395]).\n\n 159. As CLOH did not take this point at all in its argument, that really is enough to dispose of it\n in practice. However, insofar as the situation could be thus perceived to give rise to some\n element of prejudice (to refer back to the words of s 349 (1) of the Companies Law) \u201cto the\n interests of members of [HCLOF] generally\u201d (as contrasted with, merely, to the personal\n interests of CLOH, which was what was argued), and insofar as such element of prejudice\n had any substance in fact rather than merely commercial theory, the Court is of the view that\n it would not, in all the circumstances, amount to unfair prejudice, bearing in mind that it is,\n ex hypothesi here, the interests of the whole membership of HCLOF which is the factual\n situation being considered, and the effect upon which CLOH would be complaining about.\n Moreover, on any basis, the Court would not think it appropriate to exercise its discretion to\n grant any relief to CLOH in respect of such postulated prejudice, in all the above\n circumstances.\n\n (4) Intervening in the NexPoint Litigation; coupled with\n (5) Failure to sue US Bank to obtain the retained Redemption Proceeds.\n\n 160. These complaints can conveniently be taken together, here, as they are next in point of time,\n and they are argued on an interlinked basis by CLOH.\n\n Backdrop\n\n 161. After the 2021 Settlement Agreement procured the lifting of the injunction which prevented\n HCLOF from seeking redemption of its ACIS CLOs, HCLOF was able to and did instruct\n US Bank to effect redemption. US Bank had not been a party to the 2021 Settlement\n Agreement. Mr Boleat\u2019s evidence was that the Directors expected that there would be an\n immediate and smooth release of the Redemption Proceeds by US Bank to HCLOF\u2019s\n investors, as a dividend distribution in accordance with their rights. However, US Bank,\n\n \u00a9 Royal Court of Guernsey Page 32 of 42\n\n Appx. 033\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 38 of 47 PageID 7922\n\n\n instead, asserted a right to retain such proceeds as security for its contractual indemnity\n against costs, expenses or liabilities incurred by it as indentured Trustee of the relevant\n CLOs, claiming to be at clear risk of incurring such costs, expenses or liabilities in various\n lawsuits, current, potential and future, which it faced from entities controlled by or\n connected with Mr Dondero. Acting on these asserted rights, US Bank refused to release\n $41.5Mn of the proceeds.\n\n 162. There was obvious objective justification for US Bank\u2019s claimed fears. First, there were\n the two claims brought by CLOH itself amongst others in late 2019/early 2020 each\n withdrawn, but reserving the right to bring them again, combined with the fact that the\n claiming parties had refused to confirm later that these proceedings were unconditionally\n withdrawn, and indeed a threatening letter on behalf of CDAF and CLOH had been written\n in May 2020.\n\n 163. Second, at the same time as the CLOs were being redeemed, and further justifying US\n Bank\u2019s expressed fears, NexPoint \u2013 a Dondero entity - commenced an action against ACIS,\n Mr Terry, Brigade and US Bank as a minority 13% noteholder in ACIS-6 (possibly amongst\n other investments) alleging breach of fiduciary duty in the management of certain CLOs by\n ACIS.\n\n 164. Whilst the Directors of HCLOF were advised in June 2021, that US Bank\u2019s retention of the\n Redemption Proceeds was unlawful, US Bank disagreed - and of course it still held the\n funds. The Directors of HCLOF therefore needed to consider how best to deal with this\n situation, in what they judged to be HCLOF\u2019s best interests. In principle, of course, this\n meant deciding on the best, most cost-effective and potentially successful, route to recovery\n of the retained money.\n\n 165. The Directors took advice. This has been adduced in these proceedings, but in redacted\n form, with its full contents sealed, in view of their privileged nature, and the sensitivity of\n particular comments being brought into the public domain against this hostile and\n complicated litigation background. During the second half of 2021 the Directors sought,\n through their lawyers, to persuade US Bank that their retention of the funds was not lawful,\n but US Bank was adamant.\n\n 166. HCLOF plainly had two broad potential courses of action. The first was to seek to negotiate\n a way to get US Bank to agree to release the proceeds, which effectively meant having all\n the current and potential litigation terminated (\u201cOption 1\u201d). The second was to sue US Bank\n for the release of the proceeds (\u201cOption 2\u201d). Having considered detailed advice as to the\n merits of each option, taken from three eminent US law firms, the Directors decided that the\n better course was Option 1. The disadvantages of Option 2 - apart from the sheer litigation\n risk that, however, strong they thought their case was, it might not succeed - were the time\n that this would be likely to take, and also the fact that involving US Bank directly in\n proceedings would invite it to use and deplete the funds it was retaining in defraying its own\n legal costs.\n\n 167. The Directors also decided, again on advice, that intervening in the NexPoint litigation in\n the way which was chosen, (which they did in December 2021 in the Federal case, and again\n in November 2022 in the State case) would be a cost-effective part of this course of action,\n because they could assist in getting the NexPoint action struck out, in which case the\n justification for US Bank to retain moneys against the likely costs of, at least, that action\n would disappear. Since NexPoint was only a minority shareholder in ACIS-6, holding only\n 13% of the shares, the presence of HCLOF in the action, as both the majority shareholder\n and in support of the point that NexPoint\u2019s interest was below the 25% interest which the\n terms of ACIS-6 laid down as the minimum interest required in order to launch\n mismanagement claims, was thought to add considerable weight to resisting such claims.\n\n \u00a9 Royal Court of Guernsey Page 33 of 42\n\n Appx. 034\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 39 of 47 PageID 7923\n\n\n (At the time of writing this judgment, the US court\u2019s judgment in the US application to strike\n out NexPoint\u2019s claim is awaited shortly).\n\n The complaints\n\n 168. CLOH\u2019s complaint is that HCLOF did not take Option 2 and simply sue US Bank when they\n should have done, because they had received clear advice, which they believed in (and\n indeed, relayed to shareholders in a Directors\u2019 report at the time) that the retention was\n unlawful. This is the fundamental complaint, with the intervention in the NexPoint\n litigation being criticised as a part of that alternative, unjustified, strategy.\n\n Applicant\u2019s submissions\n\n 169. Essentially Advocate Horsbrugh-Porter\u2019s submission is that it was unfairly prejudicial\n conduct of HCLOF to choose the Option 1 approach \u2013 seeking, without resort to the courts,\n to bring about a situation where US Bank would accept that there was no need for them to\n retain the Redemption Proceeds or any part of them \u2013 in preference to the Option 2 approach\n \u2013 that of simply suing for their release \u2013 with the intervention in the NexPoint proceedings\n being a particular aspect of this.\n\n 170. He submits that intervening in the NexPoint Litigation was unfairly prejudicial to CLOH\n because\n\n (i) it directly affects CLOH\u2019s right to receive the Redemption Proceeds, it was\n obviously doomed to failure, given the litigious nature of the Dondero and\n Terry entities, and it did not deal with US Bank\u2019s known stance that there\n was potentially \u201cfuture\u201d litigation justifying retention, not just the NexPoint\n action;\n\n (ii) it would be a far longer process than simply suing directly to recover the\n retention monies;\n\n (iii) it would be using HCLOF money wastefully, simply to duplicate defences\n already raised by ACIS, US Bank itself, Mr Terry and Brigade;\n\n (iv) it would be a more costly process than simply taking direct action; and\n\n (v) it was actually seeking to use HCLOF monies to strike out an action which, if\n it succeeded could bring in about $50Mn of recoveries for HCLOF itself.\n\n 171. He submits that failing to sue US Bank to recover the proceeds in the summer of 2021 was\n unfairly prejudicial to CLOH because\n\n (i) it similarly directly affects CLOH\u2019s right to receive the Redemption Proceeds;\n\n (ii) doing so accorded with the Directors\u2019 expressed view in the summer of 2021\n that US Bank\u2019s withholding such proceeds was unlawful;\n\n (iii) doing so was quicker and cheaper than the \u201cnegotiation and pressure\u201d route;\n and\n\n (iv) doing so was in fact the only route by which CLOH could receive its share of\n the Redemption Proceeds given the terms of the 2021 (and later the 2023)\n Settlement Agreement.\n\n\n\n \u00a9 Royal Court of Guernsey Page 34 of 42\n\n Appx. 035\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 40 of 47 PageID 7924\n\n\n 172. Advocate Horsbrugh-Porter relies on the fact that the Directors advised shareholders, in the\n summer of 2021, that the retention of the Redemption Proceeds by US Bank was unlawful,\n without caveat or qualification. Therefore, the obvious and only right course was to take\n proceedings in accordance with that view.\n\n Respondent\u2019s submissions\n\n 173. Advocate Dunster submits that these complaints boil down to complaints about the\n commercial decisions as to the best route forward in HCLOF\u2019s interests. They are therefore,\n effectively, complaints about management decisions, taken in good faith by the Board for\n what they reasonably perceived to be those ends, and as such they do not provide a legal\n foundation for a finding of \u201cunfairly prejudicial conduct\u201d on any basis.\n\n 174. Elaborating, he submits that Mr Boleat gives a clear explanation as to why direct legal\n proceedings were not taken, on the basis of legal advice about the totality of legal and\n procedural considerations, and the consequent relevant commercial implications (those\n advices being confidentially exhibited to his affidavit, and therefore not recited here). He\n points out that CLOH has not identified any errors in the advices given to the Board, which\n CLOH would have to show was so obviously wrong that the Board should not have followed\n it. As this advice depends on US Law and procedure, any such contention would require\n to be backed by expert evidence, but CLOH has not sought to adduce any. Instead this\n whole assertion relies on the opinion of Mr Murphy, who admitted he was not an expert in\n New York Law, but opined that the case had a 70%-80% chance of success which was well\n within the bounds of what he would regard as mere \u201clitigation risk\u201d, so that he himself would\n have advised that HCLOF should go ahead and sue. Advocate Dunster submitted that was\n an astonishingly arrogant approach to take on any basis, but it was certainly insufficient to\n support any finding that the contrary approach was unfairly prejudicial to any shareholder.\n\n 175. Advocate Dunster further pointed out that CLOH had produced no evidence to support the\n proposition that HCLOF (and therefore its shareholders) would have been better off, now,\n if HCLOF had taken direct proceedings against US Bank in the summer of 2021; that\n proposition was merely assertion. CLOH has therefore failed to prove any prejudice to its\n interests as a member of HCLOF, at all.\n\n 176. Specifically as regards the decision to intervene in the NexPoint Litigation, Advocate\n Dunster submitted that Mr Boleat had once again explained why the Board saw this as being\n in the interests of HCLOF \u2013 namely that the dismissal of the NexPoint litigation would\n remove the basis for US Bank\u2019s retention of at least part of the Redemption Proceeds and\n make it more likely that it would release at least some of them to HCLOF, and he was not\n challenged on this evidence, which was supported by some of the confidential legal advice;\n all that was put to Mr Boleat was that HCLOF\u2019s intervention was not necessary, because\n ACIS and US Bank were themselves defending the proceedings.\n\n 177. In summary, this was, he submitted, once again, a commercial decision by the Board, taken,\n obviously, perfectly reasonably and (as was not challenged) in good faith. It was not\n suggested to have breached any rights which CLOH had under the contractual documents.\n Finally, no prejudice to CLOH as a shareholder had been suffered, the only prejudice alleged\n being the unsupported assertion, for which there was no evidence, that HCLOF would have\n been \u201cbetter off\u201d if the Board had not made the intervention.\n\n Discussion and conclusion\n\n 178. The Court unhesitatingly prefers Advocate Dunster\u2019s submissions on these two linked\n topics. There is ample evidence that the Board made carefully considered, and apparently\n reasonable decisions, based on taking appropriate advice, as to which approach to obtaining\n\n \u00a9 Royal Court of Guernsey Page 35 of 42\n\n Appx. 036\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 41 of 47 PageID 7925\n\n\n release of funds to HCLOF from US Bank was most likely to be cost-effective. The\n decision to pursue the approach of trying to remove US Bank\u2019s own reasons for wishing to\n withhold the monies, as opposed to the confrontational approach of simply suing them and\n relying on the legal advice obtained being ultimately \u2013 and how long and how expensive\n \u201cultimately\u201d might prove to be could not be regarded as clear \u2013 held to be correct, is a\n decision perfectly, it seems to the Court, within the range of decisions which a reasonable\n board of directors might take in the circumstances of this case. The Court agrees with\n Advocate Dunster that Advocate Horsbrugh-Porter\u2019s submission that suing US Bank rather\n than seeking to achieve the release of funds by other means would be cheaper and quicker\n than taking this latter course is simply assertion, with no evidence either adduced or\n appearing, to support it.\n\n 179. The Court finds that CLOH\u2019s submission that this amounted to unfairly prejudicial conduct\n towards it really does simply come down to the fact that it is conduct with which it (more\n accurately its current director, Mr Murphy) does not agree. That is not sufficient grounds\n for a finding of unfairly prejudicial conduct. Moreover, CLOH has not proved to the\n satisfaction of the Court that there has been any actual prejudice suffered by it as a result of\n these actions. Still less has it proved that such conduct has prejudicially affected CLOH\u2019s\n interests as a member of HCLOF unfairly.\n\n 180. It should be expressly recorded that the fifth point submitted (see [170] above) by Advocate\n Horsbrugh-Porter to amount to prejudice suffered as a result of the intervention in the\n NexPoint Litigation, (namely that intervention to try to get the NexPoint litigation struck\n out in respect of the ACIS-6 CLOs was using HCLOF\u2019s funds to defeat a claim (of breach\n of duty) which if successful, would have brought significant moneys in to HCLOF) was not,\n so far as the Court can see, raised in argument or evidence prior to Advocate Horsbrugh-\n Porter\u2019s closing speech. In particular it was not put to Mr Boleat in evidence.\n\n 181. In the Lt-Bailiff\u2019s judgment, it is not open to CLOH to rely upon this point in those\n circumstances. However, even if that were permissible, such a point appears to be entirely\n speculative, and the weight which could be attached to it as a factor supporting a criticism\n of the Board\u2019s decision is impossible to assess. The Court is therefore not satisfied that\n even those asserted facts could be sufficient to found a finding of unfairly prejudicial\n conduct towards CLOH, whose interests on this point are no different from those of any\n other shareholder in HCLOF.\n\n (6) Entry into the 2023 Settlement Agreement\n\n Backdrop\n\n 182. By this time, US Bank and ACIS had launched their own action, the December 2021\n Declaratory Action, seeking declarations that none of the designated Dondero entities had\n viable claims against them, prompted by those entities\u2019 (including CLOH) refusal to confirm\n that they were not going to bring proceedings. However, those entities, including CLOH,\n had filed counterclaims, seeking their own declaratory relief, and these proceedings had\n continued, in amongst the other litigation noted above, during the following year.\n\n 183. Meanwhile, in line with its chosen strategy to obtain release of the Redemption Proceeds\n retained by US Bank, the Directors had sought to negotiate with US Bank, and also,\n necessarily, with ACIS, who were embroiled in claims for which indemnities could be\n claimed against HCLOF, to try to secure the release of at least some of the $41.5 Mn being\n retained by US Bank. Those negotiations culminated in an agreement in escrow in\n December 2022, which became unconditional and effective on 28th February 2023 \u2013\n apparently, indeed, triggered by the decision of the Texas Court that CLOH did not require\n the permission of the Texas Court to launch these proceedings against HCLOF.\n\n \u00a9 Royal Court of Guernsey Page 36 of 42\n\n Appx. 037\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 42 of 47 PageID 7926\n\n\n 184. The 2023 Settlement Agreement contained extensive recitals of the state of the various\n Reserve Funds held in respect of each of the ACIS CLO Notes, and the potential claims for\n indemnity by US Bank as Trustee, and ACIS entities as Portfolio Manager and Collateral\n Administrator of such Notes (as there defined). It provided also for the release from such\n reserves to HCLOF of a total of $16.5 Mn, (about 40% of the entire reserve) which was then\n distributed to HCLOF\u2019s shareholders in March 2023. The Agreement contained provisions\n for reporting to HCLOF by US Bank and ACIS of the state of the reserves continuing to be\n held thereafter, and provisions preserving the rights of HCLOF to pursue its claim to the\n remainder of the sums, but also that the parties would negotiate in good faith about their\n continuing dispute.\n\n The complaints\n\n 185. CLOH\u2019s eventual complaints focus on three particular paragraphs of the 2023 Settlement\n Agreement, namely paragraphs 4(b), 6 and 12(a). It argues that HCLOF should not have\n agreed to these terms, and that its conduct in doing so was unfairly prejudicial to CLOH. It\n complains that these terms, coupled with the previous conduct already referred to, have left\n CLOH in an inescapable situation in which it is \u201ctrapped in perpetuity\u201d with no prospect of\n receiving the share of the $41.5 Mn Redemption Proceeds to which it is entitled.\n\n Applicant\u2019s submissions\n\n 186. As to Clause 4(b), by this clause HCLOF agreed to forbear from taking steps (declarations\n of default, or proceedings) to obtain release of the proceeds of the ACIS 4 and ACIS 5 Notes\n until after the very final disposal of the Declaratory Action (of 24th December 2021), with\n the parties (ACIS, US Bank and HCLOF) agreeing thereafter to meet and confer in good\n faith about potential distribution of the relevant reserves and further release of claims. By\n Clause 4(c) similar provisions were made in respect of the reserves retained in relation to\n ACIS-6, although no complaint is actually made by CLOH with regard to this.\n\n 187. CLOH submits that Clause 4(b) by preventing distributions until the termination of the\n litigation, thus ties the relevant funds up for a long and uncertain amount of time. In\n addition, the ultimate proviso is not even for payment, but merely for discussion and\n negotiation about possible payment. It therefore lacks any contractual bite and there is no\n guarantee of the release of the funds at all. It also puts (it is complained) undue pressure on\n CLOH to withdraw its counterclaim in the Declaratory Action. It is submitted that all this\n is unfairly prejudicial to CLOH.\n\n 188. As to Clause 6, by this clause HCLOF agreed to cooperate with US Bank and ACIS to pursue\n actions to recover fees, expenses and other liabilities from NexPoint in relation to the\n NexPoint Litigation, from NexPoint, CDAF and CLOH itself in relation to the Declaratory\n Action, and against any Dondero entity (including NexPoint CDAF and CLOH) which\n pursued litigation related to the ACIS CLOs. CLOH submits that by authorising HCLOF\u2019s\n funds to be spent in actively assisting third parties to sue it (CLOH) as HCLOF\u2019s own\n shareholder, and committing time and resources to pursuing it as such, this is conduct which\n is unfairly prejudicial to it.\n\n 189. As to Clause 12(a), by this Clause HCLOF agreed, once again, that any sale or transfer of\n the \u201cHCLOF Notes\u201d (that is, the ACIS CLOs) should provide (i) that the relevant transferee\n and its successors should be bound by the terms of the 2023 Settlement Agreement, and also\n (ii) that any such transferees should not be affiliated in any way with CDAF, CLOH,\n NexPoint, Mr Dondero or any entities owned or controlled directly or indirectly by Mr\n Dondero or any funds or entities managed by an affiliate of his, and further (iii) that HCLOF\n would not consent to, and would do all in its power to prevent, the transfer of its management\n\n\n\n \u00a9 Royal Court of Guernsey Page 37 of 42\n\n Appx. 038\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 43 of 47 PageID 7927\n\n\n of, or discretionary control over, its assets, or the transfer of the HCLOF Notes, to any\n Dondero entity.\n\n 190. CLOH submits that this has prevented it from availing of a valuable \u201cexit route\u201d from\n HCLOF via an in specie distribution, and prevents it from taking direct action against US\n Bank after such a distribution, and \u201cguarantees\u201d that US Bank will not release the reserves\n in the light of their letter of 13th August 2021 (this is the letter which set out US Bank\u2019s\n reasons for retaining part of the Redemption Proceeds in the first place).\n\n 191. CLOH also complains that holding the 2023 Settlement Agreement in escrow until the Texas\n Bankruptcy Court made its order of 27th February 2023 was reprehensible conduct, because\n it pressurised CLOH, unduly, to withdraw this Application.\n\n 192. Advocate Horsbrugh-Porter also submitted, generally, and he persisted in this in his closing\n submissions, that entering into the 2023 Agreement could be seen, in all the circumstances,\n to be an attempt to \u201cstifle and sabotage\u201d CLOH\u2019s exit proposals to enable it to part ways\n with HCLOF and, with its timing, was a \u201ccynical attempt to stave off\u201d this Application.\n These features were, he submitted, commercially unacceptable conduct, which was unfairly\n prejudicial to CLOH, and entitled it to relief.\n\n Respondent\u2019s submissions\n\n 193. Advocate Dunster submits that the starting point, based on Mr Boleat\u2019s effectively\n unchallenged evidence, is that these were the best terms available if HCLOF wanted to\n secure the release of at least some part of the Redemption Proceeds, and it in fact achieved\n the release of a significant part. Furthermore, it is not alleged that entering into any of the\n terms complained of was any breach of HCLOF\u2019s Articles of Association or the Members\u2019\n Agreement (except in the general respects of lack of good faith which have already been\n dismissed above).\n\n 194. As to the \u201cstandstill\u201d agreements in Clause 4, he points out that they are, simply that \u2013\n standstill agreements. They do not forgo or release any rights or claims by HCLOF, and are\n thus of negligible, if any, disadvantage. He submits that it is simply wrong to argue that\n entering into such a standstill agreement placed \u201cunfair\u201d pressure on CLOH to withdraw its\n counterclaim in the Declaratory Action. HCLOF was obliged and entitled to take what\n steps appeared to be in the interests of HCLOF in the situation where CLOH might, or might\n not, proceed with such counterclaim. In addition, it must be likely that the US courts would\n have put such litigation on hold until the disposal of the NexPoint litigation and the\n Declaratory Action and Counterclaims, in any event.\n\n 195. As for Clause 6, he submits that this clause was self-evidently for HCLOF\u2019s benefit because,\n as pointed out by Mr Boleat in his evidence, any recoveries which were made would swell\n HCLOF\u2019s assets. He submitted that the suggested prejudice was not suffered by CLOH as\n a member of HCLOF but, and clearly only, as a litigating party.\n\n 196. As for Clause 12(a)(ii), this Clause self-evidently largely replicated the existing prohibitions\n contained in Clause 2(iii) of the 2021 Settlement Agreement, and therefore, Advocate\n Dunster submits, in itself it effected no prejudice against CLOH at all. Once again, in any\n event, it disclosed no arguable prejudice to CLOH in the capacity of a member of the\n company.\n\n 197. Finally Advocate Dunster resists, strongly, any submission of reprehensible or\n unconscionable conduct by the Directors, which he submits should not have been made or\n persisted in. The clear evidence is that the Directors acted solely in what they honestly\n perceived to be the best interests of HCLOF, as was their duty. If their actions are perceived\n\n\n \u00a9 Royal Court of Guernsey Page 38 of 42\n\n Appx. 039\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 44 of 47 PageID 7928\n\n\n to cause damage to CLOH, then it is because of CLOH\u2019s separate status as a litigating party,\n or as a member, also, of the Dondero entities group, but not as a member of HCLOF and\n certainly not in a manner or to an extent which could justifiably be said to be unfair.\n\nDiscussion and conclusion\n\n 198. The Court once again prefers the submissions of Advocate Dunster to those of Advocate\n Horsburgh-Porter, and for much the same reasons generally, as it has found to apply in\n relation to each of CLOH\u2019s individual matters of complaint.\n\n 199. The Jurats accept Mr Boleat\u2019s evidence that the 2023 Settlement Agreement was pursued\n and negotiated on the basis of genuinely seeking the agreement that was most beneficial to\n HCLOF in the circumstances. The Court can see no prejudice to CLOH as a member of\n HCLOF in any of the matters challenged by Advocate Horsbrugh-Porter in relation to the\n 2023 Settlement Agreement, nor that any of the matters complained of were unfair, in all\n the circumstances.\n\n 200. CLOH\u2019s arguments in themselves show, once again, that any prejudice of which it is\n complaining is in reality prejudice to its interests as a litigating party, or as an affiliate of the\n Dondero group of entities, rather than as a member of HCLOF. Furthermore, its\n complaints about particular decisions themselves are really complaints about management\n decisions taken by the Directors, decisions which it is not entitled to control but with which\n it disagrees, in its own particular interests.\n\n 201. The fact that CLOH\u2019s complaints are made from its viewpoint as a litigating party rather\n than as a shareholder is illustrated by the fact that one such complaint, pursued in this\n Application has even been an allegation that it was reprehensible conduct by the Directors\n of HCLOF, against CLOH\u2019s interests, to enter into the 2023 settlement in escrow,\n dependent, apparently, on it being settled that CLOH was entitled to pursue this\n foreshadowed application. Viewed from a neutral standpoint, taking this step can be seen\n to be a perfectly reasonable step in the best interests of HCLOF, which the Directors were\n obliged to protect, when threatened with such an application.\n\n 202. This also illustrates why CLOH\u2019s approach, that the Directors were somehow \u201cunfairly\u201d\n disadvantaging CLOH in contrast with other shareholders simply cannot found a viable\n claim of unfairly prejudicial conduct by HCLOF. If the Directors refrained from taking a\n step which would be in the interests of HCLOF as they perceived it, because it worked\n independent disadvantage to a major shareholder (CLOH), they would not only be in breach\n of their fiduciary duty to HCLOF, but would also by the standards of CLOH\u2019s own\n argument, be acting unfairly prejudicially to the interests of the other part of the shareholder\n body.\n\n 203. CLOH\u2019s rights as a member of HCLOF were, and are, to have HCLOF\u2019s affairs conducted\n properly and competently by its Directors, in accordance with, and in the apparent best\n interests of, HCLOF\u2019s function as a closed-ended investment scheme as described in its\n Offering Memorandum, its Articles of Association and the Members\u2019 Agreement. CLOH\n had no further rights grafted on to this regime, and has no grounds for complaint under ss\n 349 and 350 of the Companies Law if measures lawfully taken by HCLOF in its own best\n interests should work to its perceived actual or relative (to other shareholders\u2019)\n disadvantage, because of CLOH\u2019s individual position.\n\n 204. CLOH is entitled to the benefit of the arrangements in HCLOF\u2019s constitutional documents.\n Insofar as CLOH might have been able and wished to avail itself of an opportunity to\n negotiate an arrangement which was outside the ambit of those constitutional documents,\n such an opportunity was merely a general commercial opportunity. It has no special\n\n \u00a9 Royal Court of Guernsey Page 39 of 42\n\n Appx. 040\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 45 of 47 PageID 7929\n\n\n protected significance. It was not a right enjoyed by CLOH as a member of HCLOF, and\n the fact that its inclination or enthusiasm to pursue such opportunities might be influenced\n by the fact that it is a shareholder in HCLOF can make no difference to this.\n\n 205. CLOH argues that the matters of unfair prejudice of which it complains can if necessary be\n regarded in combination, and would then amount to unfairly prejudicial conduct on this\n basis. Having considered and rejected CLOH\u2019s complaints individually for the reasons\n given above, the Court confirms that it rejects this argument. Taking all CLOH\u2019s\n complaints in combination does not increase their weight, nor, in particular, does the totality\n of them become prejudice to CLOH\u2019s interests as a member of HCLOF when the individual\n component parts are not.\n\nRelief\n\n 206. This can be dealt with quite shortly, in view of the fact that the Court has rejected CLOH\u2019s\n case that it is entitled to any relief. It should, however, be dealt with for completeness.\n\n 207. Assuming that CLOH had established its case of unfairly prejudicial conduct, it sought by\n way of relief in its Application, an order that it should transfer its shares in HCLOF back to\n HCLOF, in return for HCLOF transferring to it full legal and beneficial title to the assets of\n HCLOF in the proportion (49.015%) of CLOH\u2019s shareholding in such assets, either by way\n of a redemption of shares, or a share buyback. These transactions were known as the \u201cExit\n Proposals\u201d.\n\n 208. However, as had been pointed out to CLOH, and as Advocate Dunster submitted in his\n argument, there were three reasons why the court could not, or should not, order such relief.\n\n 209. The first is that HCLOF is not lawfully competent to undertake the share buyback proposed\n in the Exit Proposals because of the provisions of s 314 of the Companies Law, which\n requires a buyback of a company\u2019s shares to be authorised by an ordinary resolution of the\n company\u2019s membership. This would therefore require the support of HCM, as the majority\n shareholder, and that support had been enquired about, but is not forthcoming.\n\n 210. Second, the position is actually more acute, because under s 3.2 of the Members\u2019 Agreement,\n it was provided (for the protection of shareholders\u2019 rights inter se) that HCLOF cannot take\n any action at any meeting requiring the sanction of an ordinary resolution of the company\n without that, in fact, being authorised by an extraordinary majority, namely an affirmative\n vote of 75% of the members. This provision expressly refers to actions such as the\n \u201cconversion or redemption of shares\u201d (except in particular circumstances of default, not\n applicable here): see Clause 3.2.3. Once again, the required majority could not be obtained\n without the support of HCM as majority shareholder which is not forthcoming.\n\n 211. The third reason is that making any order for an in specie distribution would override the\n contractual rights of third parties under Clause 2(iii) of the 2021 Settlement Agreement or\n Clause 12(a) of the 2023 Settlement Agreement, and the Court will not make orders pursuant\n to its statutory jurisdiction under s 350 of the Companies Law which have that effect.\n\n 212. Advocate Dunster submits that the third reason is insurmountable, because it is established\n that the Court will not grant discretionary relief - which is what the power pursuant to ss 349\n and 350 is - which infringes the contractual rights of third parties (or requires something\n which the respondent cannot lawfully do): see Warmington v Miller [1973] QB 877 at 886.\n In addition, the courts are warned, in any event, about making orders for distributions in\n specie: see Re Neath Rugby ltd (No 2) [2007] EWHC 2999 (Ch) at [250].\n\n\n\n\n \u00a9 Royal Court of Guernsey Page 40 of 42\n\n Appx. 041\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 46 of 47 PageID 7930\n\n\n 213. The two former reasons are also insurmountable at present, because HCM is not a party to\n the Application, so that it cannot be bound by any order which might be made by the Court\n under which, possibly, its refusal of consent might be overridden, (without conceding that\n the Court could, should or would do so). This difficulty, moreover, would not be\n surmountable either, at present, because HCM cannot be convened as a party to this\n Application without the permission of the Texas Court, because doing so would fall foul of\n the gatekeeper provisions in the HCM Bankruptcy proceedings.\n\n 214. Because of those difficulties and other practical difficulties which it perceived about the\n grant of relief in any other form which might normally be contemplated in an application of\n this type, immediately before closing speeches in the hearing, CLOH notified HCLOF that\n it would be seeking a different form of relief. This was an order that HCLOF should effect\n a buy out of CLOH\u2019s shares, apparently for cash, at a full price proportionate to their relative\n share of HCLOF\u2019s NAV, in two parts, namely an immediate purchase within 14 days of\n 85% of such holding, with the remaining 15% being purchased once the US proceedings\n (presumably the Declaratory Action) had been concluded.\n\n 215. The background to this was no doubt the offer of 28th June 2022 by which HCLOF had\n revealed that they had sufficient cash in hand to re-purchase all the shares of all the minority\n shareholders at 85% of their relative NAV value. At that time CLOH had refused to accept\n that there should be a minority discount applied to the NAV figure, and so the offer had\n lapsed, but the making of it suggested that HCLOF would have enough funds to implement\n the first part of CLOH\u2019s proposed buy out.\n\n 216. Advocate Dunster\u2019s response was that this form of relief was not only not justified on the\n facts, nor supported by legal principle, but was in fact impossible for the court to grant.\n Apart from his general submissions that CLOH\u2019s claim failed on its merits, and laying aside\n any argument about whether or not any valuation of the shares would properly require a\n minority shareholding discount to be applied, (which he submitted, it did: citing Shanda\n Games Ltd v Maso Capital Investements Ltd (Cayman Islands) [2020] UKPC 2 at [38] and\n [42]) he submitted that it was impossible to calculate NAV properly without taking into\n account the wholly unquantifiable contingent liabilities of HCLOF which were contingent\n on the outcome of several sets of contentious US proceedings. Equally, there were\n contingent in-flows of cash, in the shape of possible litigation costs recoveries, which might\n replenish the sums taken from the retention reserves by US Bank to fund its own defence\n costs. No relief dependent on a valuation of HCLOF\u2019s undertaking was therefore capable\n of accurate or fair quantification.\n\n 217. Perhaps most significantly, the relief suggested by CLOH would still infringe the first two\n objections noted above, namely that, without HCM\u2019s consent, it would infringe both s 314\n of the Companies Law and would \u201cride roughshod\u201d over the terms of Clause 3 of the\n Members\u2019 Agreement.\n\n 218. Since the Court has already concluded that CLOH\u2019s application fails on the merits, it is not\n necessary for the Court to decide the above points. It records, however, and admittedly\n without having heard extensive argument in all the circumstances of this case, that it would\n be inclined to accept the objections raised by Advocate Dunster on behalf of HCLOF.\n Where that would have left the matter, if it had been necessary to consider the question of\n appropriate relief, is therefore unclear and any decisions of principle upon such questions\n will have to await their arising in another case.\n\nSummary of conclusions and disposal\n\n 219. The Court therefore summarises its conclusions as follows:\n\n\n\n \u00a9 Royal Court of Guernsey Page 41 of 42\n\n Appx. 042\n\fCase 3:23-cv-01503-B Document 28 Filed 12/22/23 Page 47 of 47 PageID 7931\n\n\n 220. The Applicant\u2019s Application fails for the following reasons, alone or in combination:\n\n (i) The Applicant has established no breach towards it of any term of the\n contractual documents defining the legal rights of the parties.\n\n (ii) This case is one of a detailed and sophisticated commercial contractual\n relationship. There is nothing in the circumstances of this case which can be cited as\n an \u201cequitable consideration\u201d importing any restraint on HCLOF\u2019s right to exercise its\n own rights under that relationship.\n\n (iii) There is no evidence that the Directors of HCLOF have taken steps other than\n in what they honestly and reasonably believed to be the best interests of the company,\n HCLOF, itself. CLOH\u2019s complaints are largely simply that it disagrees with what\n have been, on the face of it, valid and appropriate management decisions made by\n HCLOF\u2019s admittedly independent Directors.\n\n (iv) Even if there were grounds for invoking \u201cequitable constraints\u201d, the matters of\n complaint ultimately relied upon by CLOH do not disclose (except possibly in one\n minor respect) any prejudice arguably being suffered to the interests of CLOH as a\n member of HCLOF. The substance of CLOH\u2019s complaints relate to perceived\n disadvantage to it as a party engaged in litigation, whether with HCLOF or other third\n parties.\n\n (iv) The minor respect (a possibly discernible consequence of Clause 2(iii) of the\n 2021 Settlement Agreement discussed at [155] \u2013 [159] above) was not argued by\n CLOH, appears to be theoretical only rather than real, and is so minor and incidental\n that in the judgment of the Court it would not, in any event, justify the court\u2019s\n intervention.\n\n (v) Even if CLOH could be said to have suffered prejudice in its position as a\n member of HCLOF as a result of any of the matters complained of, the Court is not\n satisfied that this could be characterised as \u201cunfair\u201d prejudice in all the circumstances\n of the case.\n\n (vi) In any event, viewing the case as a whole, the Court would not consider it\n appropriate to exercise its discretion to intervene.\n\n (vii) Furthermore, the Court considers that it would not be open to it to grant any\n form of relief which CLOH has sought or now seeks.\n\n 221. The Application will therefore be dismissed. As regards costs, the Court will make an order\n dismissing the Application with the Respondent\u2019s costs to be paid by the Applicant on the\n recoverable basis unless either party wishes to contend that some other costs order is\n appropriate. If so, that party should notify the court and the other party within 7 days of the\n handing down of this judgment and further directions will be given by the Lt-Bailiff.\n\n\n\n\nHer Hon Hazel Marshall KC, Lt-Bailiff\n1 December 2023\n\n\n\n\n \u00a9 Royal Court of Guernsey Page 42 of 42\n\n Appx. 043\n\f","ocr_status":2,"date_upload":"2023-12-26T07:49:06.165535-08:00","document_number":"28","attachment_number":null,"pacer_doc_id":"177016497967","is_available":true,"is_free_on_pacer":null,"is_sealed":null,"document_type":1,"description":"","acms_document_guid":""}],"date_created":"2023-12-26T07:45:05.999787-08:00","date_modified":"2024-10-18T11:27:38.234950-07:00","date_filed":"2023-12-22","time_filed":null,"entry_number":28,"recap_sequence_number":"2023-12-22.003","pacer_sequence_number":90,"description":"Appendix in Support filed by Highland Capital Management LP re 27 Appellee's Brief (Annable, Zachery) (Entered: 12/22/2023)","tags":[]},{"resource_uri":"https://www.courtlistener.com/api/rest/v4/docket-entries/374123451/","id":374123451,"docket":"https://www.courtlistener.com/api/rest/v4/dockets/67564951/","recap_documents":[{"resource_uri":"https://www.courtlistener.com/api/rest/v4/recap-documents/381692152/","id":381692152,"tags":[],"absolute_url":"/docket/67564951/27/charitable-daf-fund-lp-v-highland-capital-management-lp/","date_created":"2023-12-26T07:45:05.984764-08:00","date_modified":"2024-10-18T11:27:38.216258-07:00","sha1":"5c5ad588c636d5c7bd2038e4d467a9ae4ae2c0e3","page_count":55,"file_size":466300,"filepath_local":"recap/gov.uscourts.txnd.378781/gov.uscourts.txnd.378781.27.0.pdf","filepath_ia":"https://archive.org/download/gov.uscourts.txnd.378781/gov.uscourts.txnd.378781.27.0.pdf","ia_upload_failure_count":null,"thumbnail":null,"thumbnail_status":0,"plain_text":" Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 1 of 55 PageID 7830\n\n\n\n Case No. 3:23-cv-1503-B\n\n\n IN THE UNITED STATES DISTRICT COURT\n FOR THE NORTHERN DISTRICT OF TEXAS\n DALLAS DIVISION\n\n\nIn re: HIGHLAND CAPITAL MANAGEMENT, L.P.,\n\n Reorganized Debtor.\n\n\nCHARITABLE DAF FUND, L.P. and CLO HOLDCO, LTD., directly and derivatively,\n\n Appellants,\n v.\n\nHIGHLAND CAPITAL MANAGEMENT, L.P., HIGHLAND HCF ADVISOR, LTD., and\nHIGHLAND CLO FUNDING, LTD., nominally,\n\n Appellees.\n\n\n On Appeal from the United States Bankruptcy Court for the Northern\n District of Texas, Dallas Division, Adv. Pro. No. 21-03067-sgj\n Hon. Stacey G. C. Jernigan\n\n\n APPELLEE\u2019S BRIEF\n\n\nPACHULSKI STANG ZIEHL & JONES LLP HAYWARD PLLC\nJeffrey N. Pomerantz (CA Bar No. 143717) Melissa S. Hayward (Texas Bar No. 24044908)\nJohn A. Morris (NY Bar No. 2405397) Zachery Z. Annable (Texas Bar No. 24053075)\nGregory V. Demo (NY Bar No. 5371992) 10501 N. Central Expy, Ste. 106\nHayley R. Winograd (NY Bar No. 5612569) Dallas, Texas 75231\n10100 Santa Monica Blvd., 13th Floor Telephone: (972) 755-7100\nLos Angeles, CA 90067 Facsimile: (972) 755-7110\nTelephone: (310) 277-6910\nFacsimile: (310) 201-0760\n\n\n Counsel for Highland Capital Management, L.P.\n\n\n\n\n4865-8321-1406.12 36027.003\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 2 of 55 PageID 7831\n\n\n\n TABLE OF CONTENTS\n Page\n\nI. ISSUES PRESENTED.........................................................................................................2\nII. STANDARD OF REVIEW .................................................................................................2\n A. Judicial Estoppel ......................................................................................................2\n B. Dismissal Under FRCP 12(b)(6)..............................................................................3\nIII. STATEMENT REGARDING ORAL ARGUMENT ..........................................................3\nIV. SUMMARY OF ARGUMENT ...........................................................................................3\nV. COUNTERSTATEMENT OF THE CASE .........................................................................6\n A. The Bankruptcy Case ...............................................................................................6\n B. The HarbourVest Settlement....................................................................................8\n C. CLOH Objects to the Settlement Motion...............................................................10\n D. Appellants File the Complaint; the Bankruptcy Court Dismisses It ......................12\n E. HCM Files the Renewed MTD; Complaint Is Dismissed .....................................14\n F. Appellants Appeal the Order .................................................................................16\nVI. ARGUMENT .....................................................................................................................17\n A. The Bankruptcy Court Correctly Found that Judicial Estoppel Bars Counts\n 2 and 5 ....................................................................................................................17\n B. The Bankruptcy Court Correctly Found that the Complaint Fails to State\n Claims Under FRCP 12(b)(6) ................................................................................23\n Appellants Fail to Plead a Breach of Fiduciary Duty in Count 1 ..............23\n Appellants Fail to Plead a Breach of Contract Claim in Count 2 ..............36\n Appellants Fail to Plead a Claim for Negligence in Count 3 .....................38\n The Bankruptcy Court Properly Dismissed Count 4 (RICO) with\n Prejudice ....................................................................................................40\n Appellants Fail to Plead Tortious Interference in Count 5 ........................41\n C. Appellants Request to Amend Under FRCP 15 Is Procedurally Improper ...........42\n D. Appellants\u2019 Request for Reconsideration of the Withdrawal Order Is\n Procedurally Improper ...........................................................................................46\nVII. CONCLUSION ..................................................................................................................46\n\n\n\n\n4865-8321-1406.12 36027.003 i\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 3 of 55 PageID 7832\n\n\n\n TABLE OF AUTHORITIES\n\n Page\n\n\nCASES\n\n1st & Trinity Super Majority, LLC v. Milligan,\n 657 S.W.3d 349 (Tex. App. 2022) .................................................................................... 42\n\nAshcroft v. Iqbal,\n 556 U.S. 662 (2009) .......................................................................................................... 23\n\nBell Atl. Corp. v. Twombly,\n 550 U.S. 544 (2007) .......................................................................................................... 23\n\nBelmont v. MB Inv. Partners,\n 708 F.3d 470 (3d Cir. 2013).............................................................................................. 35\n\nBlankship v. Buenger,\n 653 F. Appx. 330 (5th Cir. 2016)...................................................................................... 32\n\nBrandon v. Interfirst Corp.,\n 858 F.2d 266 (5th Cir.1988) ............................................................................................. 18\n\nC.C. Port, Ltd. v. Davis-Penn Mortg. Co.,\n 61 F.3d 288 (5th Cir. 1995) .............................................................................................. 23\n\nCharitable DAF Fund, L.P. v. Highland Cap. Mgmt., L.P. (In re Highland Cap. Mgmt.,\n L.P.),\n 2022 Bankr. LEXIS 2780 (Bankr. N.D. Tex. Sept. 30, 2022) .................................... 43, 45\nCharitable DAF Fund, L.P. v. Highland Cap. Mgmt., L.P. (In re Highland Cap. Mgmt.,\n L.P.),\n 643 B.R. 162 (N.D. Tex. 2022).................................................................................. passim\n\nCLO Holdco Limited v. Highland CLO Funding Limited,\n [2023] GRC061 (Roy. Court of Guernsey 1 Dec. 2023) .................................................. 33\n\nCLO Holdco, Ltd. v. Kirschner (In re Highland Cap. Mgmt., L.P.),\n 2023 U.S. Dist. LEXIS 87842 (N.D. Tex. May 18, 2023) ............................................... 44\n\nCorwin v. Marney, Orton Inv.,\n 788 F.2d 1063 (5th Cir. 1986) .......................................................................................... 26\n\nDouglass v. Beakley,\n 900 F. Supp. 2d 736 (N.D. Tex. 2012) ....................................................................... 34, 35\n\nDugaboy Inv. Tr. v. Highland Cap. Mgmt., L.P. (In re Highland Cap. Mgmt., L.P.),\n 2022 U.S. Dist. LEXIS 185186 (N.D. Tex. Sept. 26, 2022) ............................................. 10\n\nDugaboy Inv. Tr. v. Highland Cap. Mgmt., L.P. (In re Highland Cap. Mgmt., L.P.),\n 2023 U.S. App. LEXIS 19671 (5th Cir. Jul. 31, 2023)..................................................... 10\n\n\n4865-8321-1406.12 36027.003 ii\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 4 of 55 PageID 7833\n\n\nDugaboy Inv. Trust v. Highland Cap. Mgmt., L.P., 2022 U.S. Dist. LEXIS 172351 (N.D.\n Tex. Sept. 22, 2022), aff\u2019d 2023 U.S. App. LEXIS 19553 (5th Cir. Jul. 28, 2023) ......... 30\n\nEubanks v. FDIC,\n 977 F.2d 166 (5th Cir. 1992) ............................................................................................ 44\n\nGabarick v. Laurin Mar. (Am.) Inc.,\n 753 F.3d 550 (5th Cir. 2014) ............................................................................................ 18\n\nGoldenson v. Steffens,\n 2014 U.S. Dist. LEXIS 201258 (D. Me. Mar. 7, 2014) .................................................... 32\n\nGoldstein v. SEC,\n 451 F.3d 873 (D.C. Cir. 2006) .......................................................................................... 31\n\nGrigsby v. CMI Corp.,\n 765 F.2d 1369 (9th Cir.1985) ........................................................................................... 25\n\nHolstein v. Brill,\n 987 F.2d 1268(7th Cir. 1993) ........................................................................................... 44\n\nIn re Al Copeland Enters., Inc.,\n 991 F.2d 233 (5th Cir. 1993) ............................................................................................ 42\n\nIn re Enron Corp. Sec., Derivative & ERISA Litig.,\n 258 F. Supp. 2d 576 (S.D. Tex. 2003) .............................................................................. 25\n\nIn re Kolstad,\n 928 F.2d 171 (5th Cir. 1991) ........................................................................................ 5, 44\n\nIn re Linn Energy, L.L.C.,\n 927 F.3d 862, 866-67 (5th Cir. 2019) ............................................................................... 39\n\nIn re Romano,\n 350 B.R. 276 (Bankr. E.D. La. 2005) ............................................................................... 34\n\nIn re Soporex, Inc.,\n 463 B.R. 344 (Bankr. N.D. Tex. 2011) ............................................................................. 34\n\nJack/Wade Drilling, Inc. (In re Jack/Wade Drilling, Inc.),\n 258 F.3d 385 (5th Cir. 2001) ............................................................................................ 43\n\nJethroe v. Omnova Sols., Inc.,\n 412 F.3d 598 (5th Cir. 2005) ...................................................................................... 18, 20\n\nKahn v. Kohlberg, Kravis, Roberts, & Co.,\n 970 F.2d 1030 (2d Cir. 1992)............................................................................................ 29\n\nLaird v. Integrated Res.,\n 897 F.2d 826 (5th Cir. 1990) ............................................................................................ 34\n\nLittle v. KPMG LLP,\n 2008 U.S. Dist. LEXIS 26281 (W.D. Tex. Jan. 22, 2008) ............................................... 37\n\n\n\n4865-8321-1406.12 36027.003 iii\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 5 of 55 PageID 7834\n\n\nLove v. Tyson Foods, Inc.,\n 677 F.3d 258 (5th Cir. 2012) ........................................................................................ 2, 19\n\nNat\u2019l Horsemen\u2019s Benevolent & Protective Ass\u2019n v. Black,\n 2022 U.S. App. LEXIS 31958 (5th Cir. Nov. 18, 2022) .................................................. 40\n\nNexPoint Adv., L.P. v. Highland Cap. Mgmt., L.P. (In re Highland Cap. Mgmt., L.P.),\n 48 F.4th 419 (5th Cir. 2022) ................................................................................... 8, 39, 45\n\nNexPoint Diversified Real Est. Tr. v. Acis Cap. Mgmt., L.P.,\n 2023 U.S. App. LEXIS 23756 (2nd Cir. Apr. 25, 2023) ................................ 27, 28, 29, 35\n\nNexPoint Diversified Real Estate Tr. v. Acis Cap. Mgmt., L.P.,\n 620 F. Supp. 3d 36 (S.D.N.Y. 2022)................................................................................. 32\n\nOmega Overseas Partners, Ltd. v. Griffith,\n 2014 U.S. Dist. LEXIS 109781 (S.D.N.Y. Aug. 7, 2014) ................................................ 29\n\nPridgin v. Safety-Kleen Corp.,\n 2021 U.S. Dist. LEXIS 240210 (N.D. Tex. Dec. 16, 2021) ............................................. 33\n\nReading Co. v. Brown,\n 391 U.S. 471 (1968) .................................................................................................... 42, 43\n\nRodgers v. City of Lancaster Police,\n 2017 U.S. Dist. LEXIS 14588 (N.D. Tex. Jan. 6, 2017) .................................................. 39\n\nSEC v. ABS Manager, LLC,\n 2014 U.S. Dist. LEXIS 80542 (S.D. Cal. Jun. 11, 2014) ................................................. 32\n\nSEC v. Cap. Gains Rsch. Bureau, Inc.,\n 375 U.S. 180 (1963) .......................................................................................................... 30\n\nSEC v. Markusen,\n 143 F. Supp. 3d 877 (D. Minn. 2015) ............................................................................... 32\n\nSEC v. Northshore Asset Mgmt.,\n 2008 U.S. Dist. LEXIS 36160 (S.D.N.Y. May 5, 2008) .................................................. 31\n\nSEC v. Tambone,\n 550 F.3d 106 (1st Cir. 2008) vacated, 597 F.3d 436 (1st Cir. 2010) ................................ 32\n\nSEC v. Trabulse,\n 526 F. Supp. 2d 1008 (N.D. Cal. 2007) ............................................................................ 31\n\nSivertsen v. Citibank, N.A. as Tr. for Registered Holders of WAMU Asset-Back\n Certificates WAMU Series No. 2007-HE2 Tr.,\n 390 F. Supp. 3d 769 (E.D. Tex. 2019) .............................................................................. 39\n\nSnowden v. Wells Fargo Bank, N.A.,\n 2019 WL 587304 (N.D. Tex. Jan. 18, 2019), adopted by 2019 U.S. Dist. LEXIS\n 22982 (N.D. Tex. Feb. 12, 2019) ...................................................................................... 37\n\n\n\n\n4865-8321-1406.12 36027.003 iv\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 6 of 55 PageID 7835\n\n\nSouthland Sec. Corp. v. INSpire Ins. Sols., Inc.,\n 365 F.3d 353 (5th Cir. 2004) ...................................................................................... 24, 25\n\nSpecialties of Mexico Inc. v. Masterfoods USA,\n 2010 U.S. Dist. LEXIS 58782 (S.D. Tex. June 14, 2010) ................................................ 42\n\nSteadman v. SEC,\n 603 F.2d 1126 (5th Cir. 1979) .......................................................................................... 35\n\nStripling v. Jordan Prod. Co., LLC,\n 234 F.3d 863 (5th Cir. 2000) .............................................................................................. 3\n\nSuperior Crewboats, Inc. v. Primary P & I Underwriters (In re Superior Crewboats,\n Inc.),\n 374 F.3d 330 (5th Cir. 2004) ...................................................................................... 18, 20\n\nT.L. Dallas (Special Risks), Ltd. v. Elton Porter Marine Ins.,\n 2008 U.S. Dist. LEXIS 112613 (S.D. Tex. May 22, 2008) .............................................. 24\n\nTigue Inv. Co. v. Chase Bank of Tex., N.A.,\n 2004 U.S. Dist. LEXIS 27582 (N.D. Tex. Nov. 15, 2004) ............................................... 24\n\nTown North Bank, N.A. v. Shay Fin. Servs.,\n 2014 U.S. Dist. LEXIS 137551 (N.D. Tex. Sep. 30, 2014) .............................................. 25\n\nTransamerica Mtg. Advisors, Inc. (TAMA) v. Lewis,\n 444 U.S. 11 (1979) .......................................................................................... 26, 27, 28, 29\n\nTuchman v. DSC Commc\u2019ns Corp.,\n 14 F.3d 1061 (5th Cir. 1994) ............................................................................................ 25\n\nU.S. ex rel. Long v. GSDMIdea City, L.L.C.,\n 798 F.3d 265 (5th Cir. 2015) ........................................................................................ 2, 20\n\nUnited States v. McCaskey,\n 9 F.3d 368 (5th Cir.1993) ................................................................................................. 18\n\nVillarreal v. Showalter (In re Villarreal),\n 413 B.R. 633 (Bankr. S.D. Tex. 2009) ............................................................................. 34\n\nWickFire, L.L.C. v. Woodruff,\n 989 F.3d 343 (5th Cir. 2021) ............................................................................................ 41\n\n\nSTATUTES\n\n11 U.S.C. \u00a7 1141 ....................................................................................................................... 7, 45\n\n11 U.S.C. \u00a7 503 ............................................................................................................................. 43\n\n11 U.S.C. \u00a7 507 ............................................................................................................................. 43\n\n15 U.S.C. \u00a7 80b-15 ................................................................................................................ passim\n\n\n\n4865-8321-1406.12 36027.003 v\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 7 of 55 PageID 7836\n\n\n15 U.S.C. \u00a7 80b-15(a) ................................................................................................................... 38\n\n15 U.S.C. \u00a7 80b-6 .................................................................................................................. passim\n\n17 CFR \u00a7240.10b-5................................................................................................................. 15, 24\n\n18 U.S.C. \u00a7 1964 ........................................................................................................................... 40\n\nFederal Rule of Civil Procedure 12(b)(6) .............................................................................. passim\n\nFederal Rule of Civil Procedure 15(a) ................................................................................... passim\n\nFederal Rule of Civil Procedure 41(a) .................................................................................... 16, 40\n\nFederal Rule of Civil Procedure 60 .................................................................................... 6, 45, 46\n\nFederal Rule of Civil Procedure 9(b) ...................................................................................... 16, 24\n\n\nOTHER AUTHORITIES\n\nProhibition on Fraud by Advisers to Certain Pooled Investment Vehicles,\n Release No. IA-2628; File No. S7-25-06 (Aug. 3, 2007) ................................................. 31\n\n\n\n\n4865-8321-1406.12 36027.003 vi\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 8 of 55 PageID 7837\n\n\n\n CORPORATE DISCLOSURE STATEMENT\n\n Appellee Highland Capital Management, L.P. is a limited partnership, the\n\ngeneral partner of which is HCMLP GP LLC, a privately held limited liability\n\ncompany. No publicly held corporation owns 10% or more of the interests in either\n\nentity.\n\n\n\n\n4865-8321-1406.12 36027.003 1\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 9 of 55 PageID 7838\n\n\n\n I. ISSUES PRESENTED\n\n1. Whether the Bankruptcy Court properly exercised its discretion by\n\n determining that Counts 2 and 5 were barred by judicial estoppel where such\n\n determination was based on, inter alia, the Bankruptcy Court\u2019s factual finding\n\n that Appellants\u2019 \u201cinconsistent positions regarding the \u2018Right of First Refusal\u2019\n\n under the Members Agreement would appear, by any plausible measure, to be\n\n deliberate, directed, and not inadvertent\u201d?\n\n2. Whether the Bankruptcy Court properly dismissed all Counts pursuant to\n\n Federal Rule of Civil Procedure (\u201cFRCP\u201d) 12(b)(6) for failure to plausibly\n\n state a claim?\n\n II. STANDARD OF REVIEW\n\nA. Judicial Estoppel\n\n A finding of judicial estoppel is reviewed for \u201cabuse of discretion.\u201d See, e.g.,\n\nU.S. ex rel. Long v. GSDMIdea City, L.L.C., 798 F.3d 265, 271 (5th Cir. 2015);\n\nCharitable DAF Fund, L.P. v. Highland Cap. Mgmt., L.P. (In re Highland Cap.\n\nMgmt., L.P.), 643 B.R. 162, 169 (N.D. Tex. 2022). A court abuses its discretion only\n\nif it: \u201c(1) relies on clearly erroneous factual findings; (2) relies on erroneous\n\nconclusions of law; or (3) misapplies the law to the facts.\u201d Love v. Tyson Foods, Inc.,\n\n677 F.3d 258, 262 (5th Cir. 2012) (internal quotations omitted). \u201cDeference \u2026 is the\n\nhallmark of abuse-of-discretion.\u201d Id.\n\n\n\n4865-8321-1406.12 36027.003 2\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 10 of 55 PageID 7839\n\n\n\nB. Dismissal Under FRCP 12(b)(6)\n\n \u201cAn appellate court reviews a dismissal under Rule 12(b)(6) de novo.\u201d\n\nCharitable DAF Fund, L.P., 643 B.R. at 169; see also Stripling v. Jordan Prod. Co.,\n\nLLC, 234 F.3d 863, 868 (5th Cir. 2000) (same).\n\n III. STATEMENT REGARDING ORAL ARGUMENT\n\n The issues on appeal are straightforward. Appellee does not believe oral\n\nargument would assist the Court.\n\n IV. SUMMARY OF ARGUMENT 1\n\n This is the second appeal brought by Appellants\u2014two entities controlled by\n\nJames Dondero, HCM\u2019s ousted founder\u2014to overturn the dismissal of their\n\nComplaint alleging that HCM and its management violated their alleged fiduciary\n\nduties to Appellants under the Investment Advisers Act (the \u201cIAA\u201d) by entering into\n\na settlement approved by the Bankruptcy Court in early 2021 after Appellants\n\nknowingly and intentionally withdrew their objection to the settlement.\n\n On June 25, 2023, the Bankruptcy Court granted the Renewed MTD finding\n\njudicial estoppel barred Counts 2 and 5 and all Counts failed to state a claim. This\n\nAppeal followed. The Bankruptcy Court\u2019s order should be affirmed.\n\n First, after making detailed findings of fact based on the clear factual record\n\nbefore it, the Bankruptcy Court correctly found that the last necessary element for\n\n\n\n1\n Capitalized terms used but not defined in this section have the meanings given to them below.\n\n\n4865-8321-1406.12 36027.003 3\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 11 of 55 PageID 7840\n\n\n\njudicial estoppel\u2014inadvertence\u2014was satisfied by Appellants\u2019 \u201cinconsistent\n\npositions regarding the \u2018Right of First Refusal\u2019 under the Members Agreement\u201d\n\nwhich \u201cwould appear, by any plausible measure, to be deliberate, directed, and not\n\ninadvertent\u201d and that Count 2 (Breach of Contract) and Count 5 (Tortious\n\nInterference) were therefore barred by judicial estoppel.\n\n Second, the Bankruptcy Court properly dismissed all Counts for failure to\n\nstate a claim under FRCP 12(b)(6):\n\n\u2022 Count 1 (Breach of Fiduciary Duty): Clear Supreme Court precedent bars\n\n Appellants\u2019 claims under the IAA. Appellants failed to plead the required\n\n elements for a Rule 10(b)(5) claim. Finally, Appellants did not plead a state\n\n (or Guernsey) law breach of fiduciary duty claim (nor could they).\n\n\u2022 Count 3 (Negligence): The confirmed Plan bars Count 3 because it exculpated\n\n HCM for \u201cconduct occurring on or after\u201d the Petition Date arising from the\n\n \u201cadministration of the Chapter 11 Case\u201d unless such claims constituted bad\n\n faith, gross negligence, or criminal or willful misconduct. Moreover,\n\n Appellants failed to plead the required elements of a negligence claim.\n\n\u2022 Count 4 (RICO): After finding Appellants\u2019 attempt to withdraw and preserve\n\n their RICO claim was procedurally improper, the Bankruptcy Court correctly\n\n found that the RICO Count failed to plead any required element and was\n\n\n\n\n4865-8321-1406.12 36027.003 4\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 12 of 55 PageID 7841\n\n\n\n predicated on a securities law violation and therefore barred by the RICO\n\n statute.\n\n In addition to being barred by judicial estoppel, the Bankruptcy Court also\n\nproperly found that Counts 2 and 5 failed to state a claim. Count 2 was premised on\n\nHCM\u2019s alleged failure to honor the ROFR, but, as the Bankruptcy Court found based\n\non the Members Agreement\u2019s \u201cplain and unambiguous\u201d terms, the ROFR did not\n\napply to the Settlement. Count 5, alleging HCM tortiously interfered with the ROFR,\n\nis duplicative of Count 2 and failed because Appellants had no ROFR (or other\n\ncontractual right) for HCM to interfere with.\n\n Third, Appellants\u2019 request to amend under FRCP 15(a) is procedurally\n\nimproper. Each Count in the Complaint asserts that HCM violated its fiduciary,\n\ncontractual, and other obligations to Appellants during the Bankruptcy Case while\n\nHCM was a debtor-in-possession. Appellants concede, as they must, that such\n\nconduct creates an \u201cadministrative claim\u201d against HCM\u2019s estate, i.e. a bankruptcy\n\nclaim. Amendment of a bankruptcy claim is not governed by FRCP 15(a). Instead,\n\nit requires assessing, inter alia, (a) if the claimant is attempting to assert a \u201cnew\u201d\n\nclaim that could not have been foreseen from the earlier claim and (b) the prejudice\n\ncaused by the delay. See, e.g., In re Kolstad, 928 F.2d 171, 176 n.7 (5th Cir. 1991).\n\nAppellants have not pled Kolstad nor could they ever satisfy it.\n\n\n\n\n4865-8321-1406.12 36027.003 5\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 13 of 55 PageID 7842\n\n\n\n Fourth, Appellants seek reconsideration of the order denying their Motion to\n\nWithdraw if the Order is overturned. That request is procedurally improper;\n\nreconsideration requires a standalone motion under FRCP 60. Appellants\u2019 request is\n\nalso not ripe; this Court has not yet overturned the Order (nor is it likely to do so).\n\n V. COUNTERSTATEMENT OF THE CASE\n\nA. The Bankruptcy Case\n\n On October 16, 2019 (the \u201cPetition Date\u201d), Highland Capital Management,\n\nL.P. (\u201cHCM\u201d), filed a voluntary petition for relief under chapter 11 of the U.S.\n\nBankruptcy Code (the \u201cBankruptcy Case\u201d). The Bankruptcy Case is pending in the\n\nU.S. Bankruptcy Court for the Northern District of Texas, Dallas Division (the\n\n\u201cBankruptcy Court\u201d).\n\n On January 9, 2020, James Dondero, HCM\u2019s founder and former CEO, agreed\n\nto be removed from all control positions at HCM because of concerns about his\n\nability to function as an estate fiduciary. The Bankruptcy Court approved the\n\nappointment of an independent board to manage the Bankruptcy Case and estate.\n\n[B.D.I. 339]. 2\n\n On February 22, 2021, the Bankruptcy Court entered the Order Confirming\n\nthe Fifth Amended Plan of Reorganization of Highland Capital Management, L.P.\n\n(as Modified) and (ii) Granting Related Relief [B.D.I. 1943] (the \u201cConfirmation\n\n\n2\n \u201cB.D.I.\u201d refers to the docket maintained by the Bankruptcy Court in Case No. 19-34054-sgj11.\n\n\n4865-8321-1406.12 36027.003 6\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 14 of 55 PageID 7843\n\n\n\nOrder\u201d), which confirmed the Fifth Amended Plan of Reorganization of Highland\n\nCapital Management, L.P. (as Modified) [B.D.I. 1943-1] (the \u201cPlan\u201d).\n\n On August 11, 2021, the Plan became effective [B.D.I. 2700] (the \u201cEffective\n\nDate\u201d). Pursuant to the Plan, (a) the deadline for filing administrative claims against\n\nthe estate was September 25, 2021 (forty-five (45) days after the Effective Date\n\n(ROA.2387), and, (b) subject only to timely filed administrative claims, claims\n\narising prior to the Effective Date were discharged pursuant to 11 U.S.C. \u00a7 1141\n\n(ROA.2432).\n\n Moreover, the Plan also exculpated HCM \u201cfor conduct occurring on or after\n\nthe Petition Date in connection with or arising out of (i) the \u2026 administration of the\n\nChapter 11 Case \u2026 and (v) any negotiations, transactions, and documentation in\n\nconnection with the foregoing\u201d unless such conduct constituted \u201cbad faith, gross\n\nnegligence, criminal misconduct, or willful misconduct\u201d (ROA.2432-33).\n\n On September 7, 2022, the Fifth Circuit Court of Appeals affirmed, inter alia,\n\nthe exculpation and discharge provisions as to HCM. NexPoint Adv., L.P. v.\n\n\n\n\n4865-8321-1406.12 36027.003 7\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 15 of 55 PageID 7844\n\n\n\nHighland Cap. Mgmt., L.P. (In re Highland Cap. Mgmt., L.P.), 48 F.4th 419, 433-\n\n34, 438 (5th Cir. 2022); see also Charitable DAF, 643 B.R. at 176. 3\n\nB. The HarbourVest Settlement\n\n Highland CLO Funding, Ltd. (\u201cHCLOF\u201d) is a Guernsey-based investment\n\nvehicle managed by its Guernsey-based board of directors. Highland HCF Advisors,\n\nLtd. (\u201cHCFA\u201d), a wholly owned subsidiary of HCM, is HCLOF\u2019s portfolio manager.\n\nNotwithstanding Appellants\u2019 unsupported assertions, HCLOF has been controlled at\n\nall relevant times by its Guernsey-based directors who are unaffiliated with HCM.\n\nHCFA\u2019s role is limited to advising on the liquidation of HCLOF\u2019s portfolio.\n\n Prior to the Bankruptcy Case, HarbourVest 4 invested approximately $80\n\nmillion in HCLOF, which was then managed by Dondero-controlled HCM.\n\nFollowing the investment, CLO Holdco, Ltd. (\u201cCLOH\u201d), 5 held 49.02% of HCLOF\u2019s\n\ninterests, HarbourVest held 49.98%, and HCM and certain HCM employees held the\n\nremaining 1%. HarbourVest filed claims in the Bankruptcy Case exceeding $300\n\n\n3\n Writs of Certiorari have been filed with the United States Supreme Court. HCM seeks review of\nthe ruling limiting the exculpation provision to HCM, the independent board, and the official\ncommittee of unsecured creditors and its members (No. 22-631). NexPoint Advisors, L.P. (a\nDondero-entity) seeks review of the grant of exculpation to the independent board (No. 22-669).\nA separate appeal is pending in the Fifth Circuit pursuant to which certain Dondero affiliates also\nappealed the Bankruptcy Court\u2019s order [B.D.I. 3672] conforming the Confirmation Order to the\nFifth Circuit\u2019s opinion. Case No. 23-10534 (5th Cir. 2023).\n4\n \u201cHarbourVest\u201d means, collectively, HarbourVest 2017 Global Fund L.P., HarbourVest 2017\nGlobal AIF L.P., HarbourVest Dover Street IX Investment L.P., HV International VIII Secondary\nL.P., HarbourVest Skew Base AIF L.P., and HarbourVest Partners L.P.\n5\n CLOH is a wholly owned subsidiary of Appellant Charitable DAF Fund, L.P. (the \u201cDAF\u201d). B.D.I.\n2547 \u00b6 18; ROA.67. The DAF was formed in 2011 by Mr. Dondero.\n\n\n4865-8321-1406.12 36027.003 8\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 16 of 55 PageID 7845\n\n\n\nmillion, alleging that Dondero and certain of his employees fraudulently induced it\n\ninto making the investment and engaged in other wrongful conduct. ROA.3887-\n\n3945.\n\n On December 23, 2020, HCM filed its motion [B.D.I. 1625] (the \u201cSettlement\n\nMotion\u201d) seeking Bankruptcy Court approval of its settlement of all HarbourVest\u2019s\n\nclaims (the \u201cSettlement\u201d). ROA.3947-79. Pursuant to the Settlement, HarbourVest\u2019s\n\ninvestment in HCLOF was to be effectively rescinded with HarbourVest receiving\n\nallowed claims against HCM in the approximate amount of its investment in HCLOF\n\nand transferring its interest in HCLOF to an HCM affiliate.\n\n The Settlement Motion disclosed all aspects of the Settlement and Transfer,\n\nincluding (i) the amount and priority of HarbourVest\u2019s allowed claims against HCM;\n\n(ii) the identity of the HCLOF interests and that they were being transferred to an\n\nHCM affiliate; and (iii) the valuation (and method of valuation) of the transferred\n\ninterests. Id.\n\n Contrary to Appellants\u2019 assertions, pursuant to the Settlement, the HCLOF\n\ninterests were not transferred to HCM. HarbourVest was always required to transfer\n\nthe HCLOF interests directly to an HCM affiliate in a one-step transaction. ROA.65-\n\n66. (\u201cHarbourVest did not \u2018offer\u2019 its \u2026 interest in HCLOF to [HCM]. Rather, a\n\ncomponent of the [Settlement] was for HarbourVest to transfer its membership\n\ninterest in HCLOF to [HCM\u2019s] nominee \u2026.\u201d)\n\n\n\n4865-8321-1406.12 36027.003 9\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 17 of 55 PageID 7846\n\n\n\nC. CLOH Objects to the Settlement Motion\n\n On January 8, 2021, CLOH objected to the Settlement [B.D.I. 1707]\n\n(ROA.4008-17) (the \u201cObjection\u201d) 6 challenging HarbourVest\u2019s right to effectuate the\n\nSettlement, including the transfer of the HCLOF interests, and contending CLOH\n\nhad a \u201cRight of First Refusal\u201d (the \u201cROFR\u201d) to those interests under the Members\n\nAgreement. In its Objection, CLOH offered a lengthy, but faulty, analysis of the\n\napplicability of the ROFR to the Settlement. See ROA.4011-16.\n\n CLOH and Dondero conducted discovery under Bankruptcy Rule 9014(c) and\n\ndeposed Michael Pugatch, HarbourVest\u2019s representative [B.D.I. 1705]. ROA.4019-\n\n72.\n\n On January 13, 2021, HCM filed its reply [B.D.I. 1731] (ROA.4074-95),\n\nwhich demonstrated that the ROFR did not apply to the Settlement. ROA.4087-93.\n\n At the January 14, 2021, hearing on the Settlement, CLOH voluntarily\n\nwithdrew its Objection after considering HCM\u2019s analysis of the Members\n\nAgreement and applicable law. CLOH\u2019s counsel unequivocally and advertently\n\nstated:\n\n CLO Holdco has had an opportunity to review the reply briefing, and\n after doing so has gone back and scrubbed the HCLOF corporate\n documents. Based on our analysis of Guernsey law and some of the\n6\n Dondero and his family trusts also objected to the Settlement. B.D.I. 1697; 1706. After their\nobjections were overruled, they appealed but their appeals were dismissed for lack of standing.\nDugaboy Inv. Tr. v. Highland Cap. Mgmt., L.P. (In re Highland Cap. Mgmt., L.P.), 2022 U.S. Dist.\nLEXIS 185186 (N.D. Tex. Sept. 26, 2022); Dugaboy Inv. Tr. v. Highland Cap. Mgmt., L.P. (In re\nHighland Cap. Mgmt., L.P.), 2023 U.S. App. LEXIS 19671 (5th Cir. Jul. 31, 2023).\n\n\n4865-8321-1406.12 36027.003 10\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 18 of 55 PageID 7847\n\n\n\n arguments of counsel on those pleadings and our review of the\n appropriate documents, I obtained authority from my client, Grant\n Scott, as trustee for CLO Holdco, to withdraw the CLO Holdco\n objection based on the interpretation of the Members Agreement.\n\nROA.4104 (emphasis added).\n\n HCM called two witnesses in support of the Settlement Motion\u2014its court-\n\nappointed CEO, James P. Seery, Jr., and Pugatch. Dondero and his family trusts\n\ncross-examined HCM\u2019s witnesses but failed to inquire about the value of the\n\nHCLOF interests, HCM\u2019s purported fiduciary obligations, or the various\n\ncomponents of the Settlement. ROA.4158-88; 4209-37. Relying on CLOH\u2019s\n\nwithdrawal of its Objection, and the evidence admitted at the hearing, the Court\n\noverruled the remaining objections and approved the Settlement, including the\n\ntransfer of the HCLOF interests [B.D.I. 1788] (the \u201cSettlement Order\u201d). ROA.4246-\n\n53, 4271-74; Charitable DAF, 643 B.R. at 174.\n\n Consistent with the Settlement Agreement, the Settlement Order expressly\n\nauthorized the transfer of HarbourVest\u2019s interest in HCLOF directly to an HCM\n\nsubsidiary providing, in relevant part, that \u201c[p]ursuant to the express terms of the\n\n[Members Agreement] \u2026 HarbourVest is authorized to transfer its interest in\n\nHCLOF to a wholly-owned and controlled subsidiary of [HCM] \u2026 without the need\n\nto obtain the consent of any party or to offer such interests first to any other investor\n\nin HCLOF.\u201d ROA.61, 78, 4274.\n\n\n\n\n4865-8321-1406.12 36027.003 11\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 19 of 55 PageID 7848\n\n\n\nD. Appellants File the Complaint; the Bankruptcy Court Dismisses It\n\n On April 12, 2021, Appellants\u2014with a new trustee and counsel\u2014commenced\n\nthis action by filing the Original Complaint (ROA.103-28) (the \u201cComplaint\u201d) in this\n\nCourt. The Complaint asserts five causes of action (the \u201cCounts\u201d):\n\n\u2022 Count 1 alleges HCM violated its \u201cbroad\u201d fiduciary duties to Appellants under\n\n the IAA by: (a) \u201cinsider trading with HarbourVest\u201d; (b) \u201cconcealing\u201d the\n\n value of the HCLOF interests; and (c) \u201cdiverting\u201d the investment opportunity\n\n in HCLOF to HCM without first offering it to Appellants.\n\n\u2022 Count 2 alleges breach of the Members Agreement by failing to offer CLOH\n\n the HCLOF interests as Appellants allege was required by the ROFR.\n\n\u2022 Count 3 alleges HCM negligently breached its duties to Appellants under the\n\n IAA by, among other things, miscalculating the value of the HCLOF interests\n\n and breaching the ROFR.\n\n\u2022 Count 4 alleges HCM and the other defendants violated RICO by failing to\n\n disclose the \u201ctrue\u201d value of the HCLOF interests and by transferring those\n\n interests to HCM\u2019s affiliate.\n\n\u2022 Count 5 alleges HCM tortiously interfered with Appellants\u2019 ROFR.\n\nROA.113-26.\n\n On May 19, 2021, HCM filed a motion to enforce this Court\u2019s Miscellaneous\n\nOrder No. 33 (ROA. 232-39), and, on May 27, 2021, its Motion to Dismiss\n\n\n\n4865-8321-1406.12 36027.003 12\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 20 of 55 PageID 7849\n\n\n\nComplaint (the \u201cOriginal MTD\u201d) (ROA.1196-1202). On September 20, 2021, this\n\nCourt referred this action, including the Original MTD, to the Bankruptcy Court for\n\nadjudication. ROA.2877.\n\n On March 11, 2022, the Bankruptcy Court issued its order dismissing the\n\nComplaint based on collateral and judicial estoppel. ROA.3585-3610. Appellants\n\nappealed. ROA.3637-3655. This Court reversed in part and remanded. Charitable\n\nDAF, 643 B.R. at 177. This Court found the Complaint was not barred by collateral\n\nestoppel. Id., at 173. With respect to judicial estoppel, this Court determined that,\n\nalthough the Bankruptcy Court properly found that the first two elements of judicial\n\nestoppel were satisfied, the Bankruptcy Court did not address whether Appellants\u2019\n\ninconsistent position was \u201cinadvertent\u201d and remanded solely for the Bankruptcy\n\nCourt to make that determination. Id., at 175 (\u201c[T]he district court finds no issue in\n\nthe bankruptcy court\u2019s analysis of the first two elements of judicial estoppel, [but]\n\nthe bankruptcy court did not address this third element, warranting remand for\n\ndetermination \u2026 whether [Appellants] acted inadvertently to change its legal\n\nposition.\u201d)\n\n\n\n\n4865-8321-1406.12 36027.003 13\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 21 of 55 PageID 7850\n\n\n\nE. HCM Files the Renewed MTD; Complaint Is Dismissed\n\n Following remand, on October 14, 2022, HCM renewed its motion to dismiss\n\n(ROA.3844-81) (the \u201cRenewed MTD\u201d) moving to dismiss Counts 2 and 5 on\n\njudicial estoppel grounds and all counts for failure to state a claim. 7\n\n On June 25, 2023, the Bankruptcy Court entered its order dismissing the\n\nComplaint (ROA.42-79) (the \u201cOrder\u201d), finding Counts 2 and 5 were barred by\n\njudicial estoppel because the \u201cinadvertence\u201d element was satisfied and dismissing\n\nall Counts for failure to state a claim under FRCP 12(b)(6).\n\n In its Order, the Bankruptcy Court made detailed factual findings regarding\n\nthe \u201cadvertence\u201d of Appellants\u2019 withdrawal of the Objection (which was premised\n\non the applicability of the ROFR), including:\n\n\u2022 Appellants \u201cknew of and analyzed the factual and legal issues underpinning\n\n Counts 2 and 5 when they unequivocally withdrew the CLO Holdco objection\n\n \u2026 [and Appellants\u2019] acts were intentional based on the unrefuted record.\u201d 8\n\n\n\n\n7\n On November 18, 2022, Appellants filed a renewed motion to withdraw the reference in the\nBankruptcy Court (ROA.4400-09) (the \u201cWithdrawal Motion\u201d). The Bankruptcy Court\nrecommended to this Court that the Withdrawal Motion be denied (ROA.6925-41) (the \u201cR&R\u201d).\nOn July 26, 2023, this Court denied the Withdrawal Motion as moot (Civ. Action No. 3:22-cv-\n2802-B, Docket No. 17 (N.D. Tex. Jul. 26, 2023)) (the \u201cWithdrawal Order\u201d).\n8\n The Bankruptcy Court also found that \u201c[i]t is indisputable that the Plaintiff DAF is in privity with\nthe Plaintiff CLO Holdco and therefore cannot argue that only CLO Holdco should be bound by\njudicial estoppel for filing and then withdrawing its objection.\u201d ROA.67. This finding was not\nchallenged on appeal.\n\n\n4865-8321-1406.12 36027.003 14\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 22 of 55 PageID 7851\n\n\n\n\u2022 Appellants\u2019 allegations that \u201cthey were not informed \u2026 that HarbourVest had\n\n offered its shares to [HCM] for $22.5 million\u201d was both \u201cirrelevant, but \u2026\n\n also inaccurate and contradicted by the record\u201d because the Settlement\n\n provided for HarbourVest to transfer its interests to HCM\u2019s affiliate and the\n\n estimated value of the interests was fully and publicly disclosed.\n\n\u2022 Appellants had a \u201cmotive to take inconsistent positions on Counts 2 and 5.\u201d\n\n Appellants allowed HCM to bear the risk of loss on the HCLOF interests and\n\n only sought to acquire the interests after their value had crystalized.\n\nROA.64-66 (emphasis in original). Ultimately, the Bankruptcy Court found CLOH\u2019s\n\n\u201cinconsistent positions regarding the \u2018Right of First Refusal\u2019 under the Members\n\nAgreement would appear, by any plausible measure, to be deliberate, directed, and\n\nnot inadvertent. There can be no legitimate dispute that [Appellants\u2019] conduct \u2026\n\nwas \u2018advertent.\u2019\u201d ROA.67 (emphasis in original).\n\n The Bankruptcy Court also found all Counts failed to state a plausible claim\n\nas required by FRCP 12(b)(6).\n\n\u2022 Count 1 (Breach of Fiduciary Duty): Appellants\u2019 claim under the IAA was\n\n barred by Supreme Court precedent and Appellants otherwise failed to plead\n\n the elements required for a Rule 10b-5 claim and to allege any breach of\n\n fiduciary duty premised on Texas or Guernsey law. ROA.68-72.\n\n\n\n\n4865-8321-1406.12 36027.003 15\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 23 of 55 PageID 7852\n\n\n\n\u2022 Count 3 (Negligence): Appellants\u2019 claim was barred by the Plan\u2019s exculpation\n\n provision and, even if it were not, Appellants\u2019 \u201cnegligence allegations [were]\n\n speculative, conclusory, and fail[ed] to allege proximate cause.\u201d ROA.72.\n\n\u2022 Count 4 (RICO): Appellants\u2019 attempt to withdraw and preserve their RICO\n\n Count was procedurally improper because it did not comply with FRCP 41(a).\n\n Moreover, Appellants failed to plead with particularity as required by FRCP\n\n 9(b); failed to plausibly allege any RICO element; and improperly predicated\n\n this Count on a violation of securities law. ROA.73-77.\n\n\u2022 Counts 2 (Breach of Contract) and 5 (Tortious Interference): In addition to\n\n being barred by judicial estoppel, the Bankruptcy Court found that, as a matter\n\n of law, (a) the breach of contract claim failed because the ROFR did not apply\n\n to the Settlement; (b) the tortious interference claim failed because the ROFR\n\n did not apply; and (c) Counts 2 and 5 were duplicative. ROA.77-78.\n\nF. Appellants Appeal the Order\n\n On June 27, 2023, Appellants appealed the Order (ROA.1) (the \u201cAppeal\u201d).\n\nAppellants argue that the Bankruptcy Court incorrectly dismissed Count 1 (Breach\n\nof Fiduciary Duty) because (a) fiduciary duties are allegedly owed under both the\n\nIAA and Texas common law and (b) the Complaint adequately alleges breaches of\n\nthose duties. (Br. at 16-33). Appellants also challenge the Bankruptcy Court\u2019s\n\ndismissal of Count 2 (Breach of Contract) and Count 5 (Tortious Interference), both\n\n\n\n4865-8321-1406.12 36027.003 16\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 24 of 55 PageID 7853\n\n\n\nof which are premised on the alleged ROFR, because, according to Appellants, the\n\nObjection was withdrawn \u201cinadvertently\u201d (Br. at 35-39) and they adequately argued\n\nthat the ROFR applied to the Settlement (id. at 40-41). Appellants further argue that\n\nCount 3 (Negligence) is not barred by the Plan\u2019s exculpation provision and that they\n\notherwise adequately pled the elements of negligence. Finally, Appellants argue that\n\nCount 4 (RICO) should have been dismissed \u201cwithout prejudice\u201d instead of with\n\nprejudice (id. at 41-42) and that the Bankruptcy Court erred by declining to grant\n\nleave to replead under FRCP 15(a) (id. at 43).\n\n VI. ARGUMENT\n\n For the reasons set forth below, the Court should affirm the Order as the\n\nAppeal is meritless.\n\nA. The Bankruptcy Court Correctly Found that Judicial Estoppel Bars\n Counts 2 and 5\n\n The Bankruptcy Court correctly found, in a proper exercise of its discretion,\n\nthat Count 2 (for breach of the Members Agreement) and Count 5 (for tortious\n\ninterference with the Members Agreement) were barred by judicial estoppel.\n\n Judicial estoppel is \u201ca common law doctrine by which a party who has\n\nassumed one position in [its] pleadings may be estopped from assuming an\n\ninconsistent position.\u201d Brandon v. Interfirst Corp., 858 F.2d 266, 268 (5th Cir.1988).\n\nThe purpose of the doctrine is \u201cto protect the integrity of the judicial process\u201d by\n\n\u201cprevent[ing] parties from playing fast and loose with the courts to suit the\n\n\n4865-8321-1406.12 36027.003 17\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 25 of 55 PageID 7854\n\n\n\nexigencies of self-interest.\u201d Brandon, 858 F.2d at 268 (internal quotations omitted);\n\nUnited States v. McCaskey, 9 F.3d 368, 378 (5th Cir.1993). As this Court stated: \u201cA\n\ncourt examines three criteria when determining the applicability of judicial estoppel:\n\n\u2018(1) the party against whom judicial estoppel is sought has asserted a legal position\n\nwhich is plainly inconsistent with a prior position; (2) a court accepted the prior\n\nposition; and (3) the party did not act inadvertently.\u2019\u201d Charitable DAF, 643 B.R. at\n\n173.\n\n As discussed supra, the only issue before this Court concerning the\n\napplication of judicial estoppel is the element of \u201cinadvertence.\u201d 9 A failure to\n\ndisclose is considered \u201c\u2018inadvertent\u2019 only when, in general, the debtor either lacks\n\nknowledge of the undisclosed claims or has no motive for their concealment.\u201d\n\nSuperior Crewboats, Inc. v. Primary P & I Underwriters (In re Superior Crewboats,\n\nInc.), 374 F.3d 330, 335 (5th Cir. 2004) (internal quotations omitted); see also\n\nJethroe v. Omnova Sols., Inc., 412 F.3d 598, 600-01 (5th Cir. 2005) (same). Whether\n\na party acted inadvertently \u201cpresents a question of fact.\u201d Love, 677 F.3d at 262.\n\n\n\n\n9\n As noted by the Bankruptcy Court, and highlighted by the cases cited herein, \u201cin the Fifth Circuit,\nthe element of \u2018inadvertence\u2019 is generally applied in a bankruptcy context where a debtor, post-\ndischarge, seeks to assert a claim that had or could have been addressed within the bankruptcy.\nTherefore, one might be unclear whether the element of \u2018inadvertence\u2019 applies in this case, which\nrelates to a non-debtor plaintiff\u2019s change of position in an adversary proceeding.\u201d ROA.64\n(citing Gabarick v. Laurin Mar. (Am.) Inc., 753 F.3d 550, 553 n.3 (5th Cir. 2014)) (emphasis in\noriginal).\n\n\n4865-8321-1406.12 36027.003 18\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 26 of 55 PageID 7855\n\n\n\n The Bankruptcy Court\u2019s factual finding that Appellants did not act\n\ninadvertently in withdrawing their Objection was not clearly erroneous. Based on\n\nthe clear and undisputed record, the Bankruptcy Court did not abuse its discretion in\n\nruling that Appellants\u2019 inconsistent position concerning the ROFR was \u201cadvertent.\u201d\n\n In their Objection, Appellants argued the transfer of the HCLOF interests\n\npursuant to the Settlement breached the ROFR. Then, during the hearing on the\n\nSettlement, Appellants expressly, voluntarily, openly, and unequivocally withdrew\n\ntheir Objection after conceding that the Settlement and related transfer did not\n\nimplicate the ROFR. Appellants even explained their reasoning. Specifically,\n\nAppellants represented to the Bankruptcy Court that, \u201cbased on the interpretation of\n\nthe Members Agreement,\u201d and after \u201creview[ing] the reply briefing,\u201d \u201cscrubb[ing]\n\nthe HCLOF corporate documents,\u201d analyzing Guernsey law, and reviewing the\n\n\u201cappropriate documents,\u201d they were withdrawing their multi-page Objection, the\n\nfoundation of which was that the Settlement allegedly violated the ROFR. ROA.65,\n\n4104. Nevertheless, as the Bankruptcy Court found and as this Court affirmed,\n\nCounts 2 and 5 are now premised entirely on HCM\u2019s alleged violation of the\n\nROFR\u2014the very theory Appellants expressly disavowed when withdrawing their\n\nObjection. Charitable DAF, 643 B.R. at 174 (\u201c[CLOH] made clear in the withdrawal\n\nof its objection that it no longer disputed the other parties\u2019 interpretation of the\n\n[ROFR] which now forms the basis of [DAF\u2019s] second and fifth causes of action.\u201d).\n\n\n\n4865-8321-1406.12 36027.003 19\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 27 of 55 PageID 7856\n\n\n\nThe unrefuted record establishes that Appellants knew all the facts and legal issues\n\nunderlying Counts 2 and 5 when they voluntarily withdrew their Objection.\n\n Furthermore, as the Bankruptcy Court explained, it also \u201cseems implausible\u201d\n\nthat Appellants had \u201cno motivation to take inconsistent positions\u201d on the ROFR,\n\nbecause the only risk in asserting their position now is \u201clitigation risk,\u201d while \u201cthey\n\nhave borne none of the speculative risk of what would happen to the value of the\n\nHCLOF membership interests, had they had the opportunity to acquire it.\u201d ROA.67.\n\nAppellants do not dispute the factual findings regarding their motive.\n\n Appellants\u2019 inconsistent positions regarding the ROFR were thus deliberate,\n\ndirected, and advertent. Appellants\u2019 attempt to play \u201cfast and loose with the court\u201d\n\non this legal position is precisely the type of conduct the doctrine of judicial estoppel\n\nis intended to prevent. Superior Crewboats, 374 F.3d at 335-36 (non-disclosure of a\n\nviable claim was not \u201cinadvertent\u201d where debtors \u201cwere aware of the facts\n\nunderlying the claim\u201d); Jethroe, 412 F.3d at 601 (failure to disclose claim was not\n\n\u201cinadvertent\u201d where party was aware of \u201cthe facts giving rise to them\u201d); U.S. ex rel.\n\nLong v. GSDMIdea City, L.L.C., 798 F.3d 265, 272 (5th Cir. 2015) (failure to\n\ndisclose claims was not \u201cinadvertent\u201d where party \u201cwas aware of the facts\n\nunderlying his claims as early as 2010 and [] filed this lawsuit in 2011,\u201d noting\n\ninadvertence through lack of knowledge cannot be shown \u201cas long as the debtor has\n\nenough information to suggest that he may have a potential claim.\u201d).\n\n\n\n4865-8321-1406.12 36027.003 20\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 28 of 55 PageID 7857\n\n\n\n Notwithstanding the indisputable facts in the record, Appellants now contend\n\nthey acted inadvertently in withdrawing the Objection because they lacked\n\n\u201cinformation about the asset valuations\u201d of the HCLOF interests until after the\n\nSettlement hearing. Br. at 37-38. That claim is false and irrelevant. 10 As the\n\nBankruptcy Court found, even if the ROFR applied to the Settlement (and it does\n\nnot), the ROFR \u201cwould not be dependent on the value of the HCLOF\n\nshares/membership interests\u201d (ROA.65)\u2014i.e., the value of the HCLOF interests\n\ncould be relevant to whether to acquire the interests but not to whether the ROFR\n\ncreated an acquisition right. The only information relevant to determine whether the\n\nSettlement violated the ROFR was the terms of the Settlement and HCLOF\u2019s\n\ngoverning documents, including the Members Agreement. Appellants indisputably\n\nhad this information and specifically cited it when withdrawing the Objection.\n\nROA.4104.\n\n Appellants now contend their inconsistent position was \u201cinadvertent\u201d because\n\nthey did not litigate the \u201cmerits\u201d of Counts 2 and 5 during the Settlement hearing.\n\nBr. at 38-39. Appellants are conflating collateral estoppel with judicial estoppel.\n\nCollateral estoppel requires a legal position to have been \u201cactually litigated.\u201d\n\n\n\n10\n Appellants\u2019 allegation that the $22.5 million valuation of the HCLOF interests disclosed during\nthe Settlement hearing was somehow \u201cfalse\u201d (Br. at 9, 11, 37-38) is flatly contradicted by the\nrecord. The Settlement Motion expressly stated that the net asset value of the HCLOF interest was\n\u201cestimated to be approximately $22 million as of December 1, 2020.\u201d ROA.3955.\n\n\n4865-8321-1406.12 36027.003 21\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 29 of 55 PageID 7858\n\n\n\nCharitable DAF, 643 B.R. at 172. Judicial estoppel has no such requirement. Id. at\n\n173. The issue is not whether Count 2 and 5 were litigated in connection with the\n\nSettlement. It is whether Appellants acted advertently when they asserted a plainly\n\ninconsistent legal position in Counts 2 and 5.\n\n Appellants next argue they are not judicially estopped because they had no\n\n\u201cduty\u201d to object to the Settlement in the first place. (Br. at 37). Whether a party has\n\na \u201cduty\u201d to object is irrelevant to judicial estoppel. Again, the issue is whether\n\nAppellants took inconsistent positions (they did). Appellants conceded that the\n\nROFR did not apply to the Settlement when they knowingly and intentionally\n\nwithdrew their Objection. But now (after replacing Appellants\u2019 representative and\n\ncounsel) they take the exact opposite position in Counts 2 and 5. It is the\n\nintentionality of their concession that is relevant to \u201cadvertence.\u201d\n\n Appellants\u2019 argument that the Bankruptcy Court did not \u201crely\u201d on their\n\nprevious inconsistent position (Br. at 39) is also irrelevant, erroneous, and foreclosed\n\nby this Court\u2019s prior order (Charitable DAF, 643 B.R. at 174). The only issue on\n\nremand regarding judicial estoppel was whether Appellants acted \u201cinadvertently\u201d in\n\ntaking inconsistent positions.\n\n The Bankruptcy Court\u2019s factual finding that Appellants\u2019 contradictory\n\npositions were not \u201cinadvertent\u201d is not clearly erroneous, and its finding that Counts\n\n\n\n\n4865-8321-1406.12 36027.003 22\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 30 of 55 PageID 7859\n\n\n\n2 and 5 are barred by judicial estoppel was therefore not an abuse of discretion and\n\nshould be affirmed.\n\nB. The Bankruptcy Court Correctly Found that the Complaint Fails to State\n Claims Under FRCP 12(b)(6)\n\n The Bankruptcy Court correctly found that all Counts fail to state claims upon\n\nwhich relief could be granted under FRCP 12(b)(6). To survive a motion to dismiss\n\npursuant to FRCP 12(b)(6), a plaintiff must plead \u201cenough facts to state a claim to\n\nrelief that is plausible on its face.\u201d Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570\n\n(2007). Dismissal is proper under Rule 12(b)(6) when, taking the facts alleged in the\n\ncomplaint as true, it appears that the plaintiff \u201ccannot prove any set of facts that\n\nwould entitle it to the relief it seeks.\u201d C.C. Port, Ltd. v. Davis-Penn Mortg. Co., 61\n\nF.3d 288, 289 (5th Cir. 1995). \u201cWhere a complaint pleads facts that are \u2018merely\n\nconsistent with\u2019 a defendant\u2019s liability, it \u2018stops short of the line between possibility\n\nand plausibility of entitlement to relief.\u2019\u201d Ashcroft v. Iqbal, 556 U.S. 662, 663 (2009)\n\n(citations omitted). A court may take judicial notice of matters of public record when\n\nconsidering a motion to dismiss for failure to state a claim. See, e.g., T.L. Dallas\n\n(Special Risks), Ltd. v. Elton Porter Marine Ins., 2008 U.S. Dist. LEXIS 112613, at\n\n*5 (S.D. Tex. May 22, 2008).\n\n Appellants Fail to Plead a Breach of Fiduciary Duty in Count 1\n\n Appellants\u2019 fiduciary duty claim is premised on HCM\u2019s alleged: (i) insider\n\ntrading; (ii) concealment of the value of the HCLOF interests; and (iii) diversion of\n\n\n4865-8321-1406.12 36027.003 23\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 31 of 55 PageID 7860\n\n\n\nan investment opportunity, each in violation of the anti-fraud provisions in Rule 10b-\n\n5 of the Securities and Exchange Act of 1934 (the \u201cExchange Act\u201d) and Section 206\n\nof the IAA (codified at 15 U.S.C. \u00a7 80b-6). ROA.115-18. Count 1 fails to state a\n\nclaim and must be dismissed.\n\n Where, as here, a plaintiff\u2019s breach of fiduciary duty claim is premised on\n\ntheories of securities fraud, FRCP 9(b)\u2019s heightened pleadings standards apply. See\n\nTigue Inv. Co. v. Chase Bank of Tex., N.A., 2004 U.S. Dist. LEXIS 27582, at *4\n\n(N.D. Tex. Nov. 15, 2004). \u201cA cause of action lies under Rule 10b-5 \u2018only if the\n\nconduct alleged can be fairly viewed as manipulative or deceptive \u2018within the\n\nmeaning of the statute.\u201d Id. (citations omitted). To state a securities-fraud claim\n\nunder section 10(b) and Rule 10b\u20135, plaintiffs must plead: \u201c(1) a misstatement or\n\nomission; (2) of a material fact; (3) made with scienter; (4) on which the plaintiffs\n\nrelied; and (5) that proximately caused the plaintiffs\u2019 injuries.\u201d Southland Sec. Corp.\n\nv. INSpire Ins. Sols., Inc., 365 F.3d 353, 368 (5th Cir. 2004). \u201cA fact is material if\n\nthere is \u2018a substantial likelihood that, under all the circumstances, the omitted fact\n\nwould have assumed actual significance in the deliberations of the reasonable\n\nshareholder.\u2019\u201d Id. (quoting Grigsby v. CMI Corp., 765 F.2d 1369, 1373 (9th\n\nCir.1985)). \u201c[S]cienter is a crucial element of the securities fraud claims.\u201d Tuchman\n\nv. DSC Commc\u2019ns Corp., 14 F.3d 1061, 1067 (5th Cir. 1994).\n\n\n\n\n4865-8321-1406.12 36027.003 24\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 32 of 55 PageID 7861\n\n\n\n As found by the Bankruptcy Court, Appellants\u2019 allegations underlying their\n\nbreach of fiduciary duty claim are conclusory and plead without factual support or\n\nparticularity. See, e.g., ROA.118-19 (speculating about Appellants\u2019 \u201clost\n\nopportunity cost,\u201d and vaguely asserting that \u201cDefendants\u2019 malfeasance\u201d has\n\n\u201cexposed HCLOF to a massive liability from HarbourVest.\u201d). Appellants\u2019\n\nallegations also fail to give rise to a \u201cstrong interference of scienter\u201d sufficient to\n\nstate a claim under Rule 10(b). See In re Enron Corp. Sec., Derivative & ERISA\n\nLitig., 258 F. Supp. 2d 576, 635 (S.D. Tex. 2003); Southland, 365 F.3d at 368\n\n(plaintiff must plead \u201cmore than allegations of motive and opportunity to withstand\n\ndismissal\u201d for claim of securities fraud). Appellants\u2019 allegations regarding proximate\n\ncause are equally deficient. ROA.119 (vaguely alleging that because of HCM\u2019s\n\nactions, \u201c[Appellants] have lost over $25 million\u201d). Because Appellants fail to\n\nproperly plead securities fraud, any fiduciary claim premised on such allegations\n\nnecessarily fails as well. See Town North Bank, N.A. v. Shay Fin. Servs., 2014 U.S.\n\nDist. LEXIS 137551, at *74 (N.D. Tex. Sep. 30, 2014).\n\n Appellants allege HCM breached its \u201cunwaivable\u201d fiduciary duty under the\n\nIAA. ROA.118. This Count is purportedly premised on the IAA because (i) HCM\n\n\n\n\n4865-8321-1406.12 36027.003 25\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 33 of 55 PageID 7862\n\n\n\nwas the DAF\u2019s investment advisor under an advisory agreement 11 and (ii) HCFA is\n\nHCLOF\u2019s investment advisor under a separate advisory agreement (together, the\n\n\u201cAdvisory Agreements\u201d).\n\n In their Complaint, Appellants alleged that they had a private right of action\n\nfor breach of fiduciary duty under Section 206 of the IAA. But Section 206 does not\n\nprovide a private right of action. See, e.g., Transamerica Mtg. Advisors, Inc. (TAMA)\n\nv. Lewis, 444 U.S. 11 (1979) (finding no private right of action under Section 206 of\n\nthe IAA); Corwin v. Marney, Orton Inv., 788 F.2d 1063, 1066 (5th Cir. 1986)\n\n(affirming dismissal of IAA claim \u201cbecause the investors had no private causes of\n\naction\u201d). Confronted with this legal reality, Appellants, abruptly pivoted, arguing\n\nthat Section 215 of the IAA (codified at 15 U.S.C. \u00a7 80b-15) supports Count 1\n\nbecause Section 206 was \u201cviolated in the \u2018making\u2019 of the settlement agreement and\n\nthe \u2018performance\u2019 of the advisory agreements\u201d (Br. at 22)\u2014i.e., HCM\u2019s conduct\n\nviolated the IAA.\n\n\n\n\n11\n Appellants mistakenly relied on the Amended and Restated Investment Advisory Agreement,\nexecuted on July 1, 2014. ROA.114. That document was superseded by the Second Amended and\nRestated Investment Advisory Agreement, effective January 1, 2017 (the \u201cDAF Agreement\u201d).\nROA.4899-4920. Under the DAF Agreement (executed when Dondero controlled HCM and\nDAF), HCM provided the DAF with investment advice but had no authority to bind the DAF\nunless directed. See, e.g., ROA.4902 (granting HCM limited authority \u201cto purchase or otherwise\ntrade in Financial Instruments that have been approved by the General Partner); ROA.4903 (\u201cALL\nINVESTMENT DECISIONS \u2026 SHALL AT ALL TIMES REST SOLELY WITH THE\nGENERAL PARTNER AND/OR THE \u2026 SUBSIDIARY \u2026.\u201d).\n\n\n4865-8321-1406.12 36027.003 26\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 34 of 55 PageID 7863\n\n\n\n As an initial matter, and as found by the Bankruptcy Court, Appellants did not\n\nplead a claim under Section 215. ROA.70-71 (\u201cPlaintiffs have not pleaded any such\n\nclaim [under Section 215]\u201d). It is axiomatic that an unpled claim cannot allege facts\n\nsufficient to withstand a motion to dismiss.\n\n Even if Appellants had asserted a claim under Section 215, Count 1 would\n\nstill fail as a matter of law. Section 215 provides only a limited private right of action.\n\nTAMA, 444 U.S. at 18 (\u201cIn the case of \u00a7 215, we conclude that the statutory language\n\nitself implies a right to specific and limited relief in a federal court.\u201d); NexPoint\n\nDiversified Real Est. Tr. v. Acis Cap. Mgmt., L.P., 2023 U.S. App. LEXIS 23756, at\n\n*8 (2nd Cir. Apr. 25, 2023) (same). However, Section 215 is expressly limited to\n\nvoiding an advisory agreement if the formation or performance of such agreement\n\nwould violate the IAA. TAMA, 444 U.S. at 18-19. Here, Appellants seek damages\n\nfor Appellees\u2019 allegedly wrongful conduct, not recission or the voiding of an\n\nallegedly unlawful agreement. Section 215 thus does not support Count 1 and\n\nAppellants know it.\n\n Earlier this year, in another HCM-related action, NexPoint Diversified Real\n\nEstate Fund (\u201cNexPoint\u201d) 12 appealed an order dismissing a claim under the IAA to\n\nthe United States Court of Appeals for the Second Circuit. In its appeal, NexPoint\n\n\n\n12\n NexPoint is another entity controlled by Dondero. ROA.2308. NexPoint\u2019s counsel is the same\ncounsel representing Appellants.\n\n\n4865-8321-1406.12 36027.003 27\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 35 of 55 PageID 7864\n\n\n\nargued\u2014exactly as Appellants do here\u2014that a cause of action for damages existed\n\nunder Section 215 because the defendants allegedly breached their obligations to\n\nNexPoint under Section 206.\n\n The Second Circuit flatly rejected NexPoint\u2019s argument, finding, consistent\n\nwith TAMA and established precedent, that Section 215 is \u201ccentered on contracts,\n\nnot the conduct of parties to contracts\u201d and that Section 215 did not support a cause\n\nof action premised on an advisor\u2019s alleged misconduct:\n\n Here, NexPoint alleges that the Advisers engaged in self-dealing\n conduct \u2026 that this \u201cperformance\u201d \u2026 involve[d] the violation of\u201d the\n IAA -- specifically, \u00a7206 \u2026. NexPoint does not contend that any\n provision of the PMA or the Indenture requires anything unlawful. To\n the contrary, it alleges that most of the Advisers\u2019 conduct breached their\n obligations under the PMA or the Indenture. NexPoint argues that it is\n nonetheless entitled to rescission under \u00a7215(b) because the alleged\n misconduct occurred in the course of the Advisers\u2019 performance of their\n general portfolio-management activities. The question before us is\n whether this claim is within the scope of the cause of action Congress\n authorized when it \u201cdeclared in \u00a7215 that certain contracts are void.\u201d\n \u2026 Like the District Court, we conclude that it is not.\n\n ***\n\n Read as a whole, \u00a7215 -- again, entitled \u201cValidity of contracts\u201d -- is a\n statute centered on contracts, not the conduct of parties to contracts \u2026.\n As such, permitting claims under \u00a7215(b) based solely on conduct not\n required by the contract would create \u2026 \u201ca backdoor to the private right\n of action that the Supreme Court refused to find under \u00a7206.\u201d \u2026 The\n Supreme Court concluded in TAMA that Congress did not intend \u00a7206\n to be enforced through private litigation. This holding would have little\n practical significance if plaintiffs could sue under \u00a7215 for any\n violation of \u00a7206, with the only difference being in the nature of the\n remedy (rescission and restitution under \u00a7215 as opposed to damages).\n\n\n\n4865-8321-1406.12 36027.003 28\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 36 of 55 PageID 7865\n\n\n\nNexPoint, 2023 U.S. App. LEXIS 23756, at *10-14 (emphasis in original) (citing\n\nTAMA, 444 U.S. at 17; Kahn v. Kohlberg, Kravis, Roberts, & Co., 970 F.2d 1030\n\n(2d Cir. 1992); Omega Overseas Partners, Ltd. v. Griffith, 2014 U.S. Dist. LEXIS\n\n109781, at *2 (S.D.N.Y. Aug. 7, 2014)). 13\n\n Here, just like in NexPoint, there is no allegation that the formation or the\n\nperformance of the Advisory Agreements required the violation of the IAA. Instead,\n\nAppellants argue the \u201c\u2018making\u2019 of the settlement agreement\u201d and HCM\u2019s alleged\n\nviolation of Section 206 in connection with the Settlement creates a cause of action\n\nunder Section 215. The Complaint thus only addresses HCM\u2019s conduct, not the\n\npropriety of the Advisory Agreements themselves. But, as found by the Second\n\nCircuit, Section 215 does not apply to claims arising from conduct; it only applies if\n\nan advisory agreement\u2019s formation or performance requires a violation of the IAA.\n\nEven if it did, the only remedy available to Appellants would be a claim for recission\n\nand restitution, not the compensatory damages they seek. TAMA, 444 U.S. at 19, 25\n\nn.4 (\u201cRestitution [under \u00a7215] would not \u2026 include compensation for any\n\ndiminution in value of the \u2026 investment alleged to have resulted from the adviser\u2019s\n\naction or inaction. Such relief could provide by indirection the equivalent of a private\n\n\n\n\n13\n The Second Circuit also rejected Appellants\u2019 argument that Section 29 of the Exchange Act\nsupports their Section 215 argument. Id. at *16.\n\n\n4865-8321-1406.12 36027.003 29\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 37 of 55 PageID 7866\n\n\n\ndamages remedy [under \u00a7206] that we have concluded Congress did not confer.\u201d)\n\nAppellants have not sought recission or restitution.\n\n Moreover, even if a viable claim existed under the IAA (and it does not),\n\nAppellants\u2019 allegations would still be deficient for failure to plead \u201cduty\u201d or\n\n\u201cbreach.\u201d As Appellants admitted when withdrawing their objection to the\n\nHarbourVest Settlement, HCM owed no duty to offer the HCLOF interests to\n\nAppellants. The Settlement and transfer of the HCLOF interests were effectuated in\n\ncompliance with the Members Agreement and the Bankruptcy Court\u2019s Settlement\n\nOrder. And the DAF Agreement transparently disclosed that HCM could compete\n\nwith the DAF for investments with no obligation to offer those investments to the\n\nDAF. 14 SEC v. Cap. Gains Rsch. Bureau, Inc., 375 U.S. 180, 181-82 (1963) (noting\n\n\u201cthe evident purpose of the [IAA was] to substitute a philosophy of disclosure for\n\nthe philosophy of caveat emptor\u201d and finding disclosure of an adviser\u2019s \u201cpractice of\n\npurchasing shares \u2026 for his own account\u201d satisfied the IAA fiduciary duties);\n\nDugaboy Inv. Trust v. Highland Cap. Mgmt., L.P., 2022 U.S. Dist. LEXIS 172351,\n\nat *10-11 (N.D. Tex. Sept. 22, 2022), aff\u2019d 2023 U.S. App. LEXIS 19553 (5th Cir.\n\nJul. 28, 2023) (addressing argument that fiduciary duties under the IAA cannot be\n\n\n\n14\n See, e.g., ROA.4914 (\u201cThe Fund will be subject to a number of actual and potential conflicts of\ninterest \u2026 including \u2026 that \u2026 Highland \u2026 may actively engage in transactions in the same\nsecurities sought by the Fund and, therefore, may compete with the Fund for investment\nopportunities\u2026\u201d).\n\n\n4865-8321-1406.12 36027.003 30\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 38 of 55 PageID 7867\n\n\n\nwaived and finding investor consented to potential conflict when clear disclosure\n\nwas made). 15\n\n HCM also owed no duty to CLOH as an investor in HCLOF under the HCFA\n\nAgreement or otherwise; there is no fiduciary relationship between an adviser to a\n\nfund and the fund\u2019s individual investors. Goldstein v. SEC, 451 F.3d 873, 879 (D.C.\n\nCir. 2006) (\u201cThe adviser owes fiduciary duties only to the fund [i.e., the client], not\n\nto the fund\u2019s investors \u2026 If the investors are owed a duty and the entity is also owed\n\na fiduciary duty, then the adviser will inevitably face conflicts of interest\u201d); see also\n\nSEC v. Northshore Asset Mgmt., 2008 U.S. Dist. LEXIS 36160, at *18-20 (S.D.N.Y.\n\nMay 5, 2008) (dismissing claim that advisor owed a duty to investors rather than just\n\nthe fund); SEC v. Trabulse, 526 F. Supp. 2d 1008, 1016 (N.D. Cal. 2007) (same);\n\nProhibition on Fraud by Advisers to Certain Pooled Investment Vehicles, Release\n\nNo. IA-2628; File No. S7-25-06 (Aug. 3, 2007), ROA.4891 (Rule 206(4)-8 \u201cdoes\n\n\n\n\n15\n The Dugaboy Investment Trust is one of Dondero\u2019s two family trusts. Dugaboy\u2019s claims in this\naction arose from HCM\u2019s settlement with UBS in which Dugaboy argued, inter alia, that HCM,\nby settling, breached its \u201cunwaivable\u201d fiduciary duties to Dugaboy as an investor in another HCM-\nmanaged fund.\n\n\n4865-8321-1406.12 36027.003 31\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 39 of 55 PageID 7868\n\n\n\nnot create under the Advisers Act a fiduciary duty to investors or prospective\n\ninvestors in a pooled investment vehicle not otherwise imposed by law\u201d). 16\n\n Finally, as explained by the Bankruptcy Court, there was no corporate\n\nopportunity to divert. HarbourVest asserted bankruptcy claims against HCM\n\nseeking, among other things, the effective rescission of its investment in HCLOF.\n\nThe Settlement effectuated that remedy. Because HarbourVest had no claims against\n\nAppellants, there was no taking of a corporate opportunity. HCM was resolving a\n\nclaim against HCM, not purchasing a security, and could not transfer its liability to\n\nHarbourVest to Appellants.\n\n Appellants also fail to allege any breach of fiduciary claims premised on state\n\nlaw. First, the Complaint references no state law (or Guernsey law) fiduciary duties;\n\n\n\n16\n To contradict the law, Appellants argue Seery is bound by a \u201cjudicial admission.\u201d Br. at 19.\nJudicial admissions apply to statements of fact, not conclusions of law like whether a fiduciary\nduty exists. See, e.g., Blankship v. Buenger, 653 F. Appx. 330, 334 (5th Cir. 2016) (\u201cJudicial\nadmissions are defined as \u2018factual assertions in pleadings .\u2026\u2019 A judicial admission \u2018has the effect\nof withdrawing a fact from contention.\u2019\u201d) Appellants also cite several inapposite cases. SEC v.\nTambone, 550 F.3d 106 (1st Cir. 2008) was vacated, 597 F.3d 436 (1st Cir. 2010). SEC v. ABS\nManager, LLC, 2014 U.S. Dist. LEXIS 80542 (S.D. Cal. Jun. 11, 2014), did not grant the SEC\u2019s\nsummary judgment motions but granted summary judgment on the Rule 206 claims to the\ndefendants (2014 U.S. Dist. LEXIS 80542, at *48). SEC v. Markusen, 143 F. Supp. 3d 877 (D.\nMinn. 2015), did not deny a motion to dismiss by investors; it granted the SEC a default judgment\n(and dealt with a scheme to defraud a fund, not individual investors). Goldenson v. Steffens, 2014\nU.S. Dist. LEXIS 201258 (D. Me. Mar. 7, 2014), did not hold that an advisor had \u201ca general\nfiduciary duty to investors\u201d but stood for the unremarkable proposition that an advisor who acted\nas an advisor to an individual, rather than a fund, had fiduciary duties to the individual\ninvestor/advisee. NexPoint also cited Goldenson. NexPoint Diversified Real Estate Tr. v. Acis Cap.\nMgmt., L.P., 620 F. Supp. 3d 36, n.3 (S.D.N.Y. 2022) (\u201cPlaintiff also cites Goldenson \u2026 that \u2026\ndoes not change the analysis here. There, the plaintiff had argued that the defendant breached a\nfiduciary duty under Maine common law, not the IAA.\u201d)\n\n\n4865-8321-1406.12 36027.003 32\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 40 of 55 PageID 7869\n\n\n\nthe only allegation is that HCM violated its alleged federal duties to Appellants\n\nunder the IAA. Again, an unpled claim cannot allege facts sufficient to withstand a\n\nmotion to dismiss.\n\n Even if Appellants had alleged a state law fiduciary duty claim, it would be\n\nsubject to dismissal. Texas law 17 provides \u201c[t]he elements of a breach of fiduciary\n\nduty claim are: (1) a fiduciary relationship between the plaintiff and defendant; (2)\n\nthe defendant must have breached his fiduciary duty to the plaintiff; and (3) the\n\ndefendant\u2019s breach must result in injury to the plaintiff or benefit to the defendant.\u201d\n\nMatter of ATP Oil & Gas Corp., 711 F. App\u2019x 216, 221 (5th Cir. 2017) (internal\n\nquotations omitted). \u201cThe plaintiff must plead some facts as to the nature of the\n\nrelationship to state a plausible claim that that a fiduciary duty has been breached.\u201d\n\nMatter of Life Partners Holdings, Inc., 926 F.3d 103, 125 (5th Cir. 2019).\n\n\n\n\n17\n If Appellants allege a breach of fiduciary duty to HCLOF\u2019s members (i.e., CLOH), HCLOF is\na Guernsey entity and the Members Agreement is governed by Guernsey law. ROA.4359. Under\nthe internal affairs doctrine, Guernsey law controls on issues of fiduciary duties to the members.\nSee Pridgin v. Safety-Kleen Corp., 2021 U.S. Dist. LEXIS 240210, at *6 (N.D. Tex. Dec. 16,\n2021). If they are alleging a breach arising from the HCFA Agreement, they have no right to do\nso as they are not a party to the HCFA Agreement and are owed no fiduciary duty as an investor\nin HCLOF by either HCFA or HCLOF under Guernsey law. CLO Holdco Limited v. Highland\nCLO Funding Limited, [2023] GRC061 (Roy. Court of Guernsey 1 Dec. 2023) (\u201cIt is no part of a\ncompany director\u2019s general duties to consider or take account of the personal interests or\ncircumstances of particular shareholders \u2026. [A]ny such proposition would be entirely unworkable\nin practice \u2026 [and] would almost inevitably lead to a failure to do the same as regards the interests\nof another shareholder \u2026. It would also \u2026 put directors in an impossible position of conflict of\ninterest.\u201d). Regardless, Appellants fail to plead a breach of fiduciary duty under Texas or Guernsey\nlaw.\n\n\n4865-8321-1406.12 36027.003 33\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 41 of 55 PageID 7870\n\n\n\n The Complaint fails to sufficiently allege facts regarding the nature of the\n\nrelationship between Appellants and HCM. ROA.114 (generally alleging only that\n\n(i) HCM \u201cowed a fiduciary duty to [Appellants]\u201d pursuant to which HCM \u201cagreed\n\nto provide sound investment advice,\u201d and (ii) this fiduciary relationship is \u201cbroad\n\nand applies to the entire advisors-client relationship\u201d). The Complaint also fails to\n\nadequately allege that any state law or Guernsey fiduciary duty existed, let alone was\n\nbreached, for the same reasons. Life Partners, 926 F.3d at 125 (no allegation of \u201cthe\n\nnature of the fiduciary duty owed\u201d to plaintiff). The allegations of HCM\u2019s alleged\n\nbreach of its \u201cinternal policies and procedures\u201d or the diversion of \u201ccorporate\n\nopportunities\u201d are vague and conclusory. ROA.116-19; In re Soporex, Inc., 463 B.R.\n\n344, 417 (Bankr. N.D. Tex. 2011).\n\n Appellants contend Douglass v. Beakley supports their unasserted state law\n\nfiduciary duty claim. 900 F. Supp. 2d 736 (N.D. Tex. 2012). Although Douglass\n\nallowed a state law breach of fiduciary duty claim premised on Section 206 of the\n\nIAA to proceed, Douglass does not bind this Court 18 and its logic has been criticized:\n\nA litigant cannot avoid the Supreme Court\u2019s clear prohibition on private rights of\n\naction under the IAA by simply alleging the prohibited IAA claim arises under state\n\n18\n See, e.g., Villarreal v. Showalter (In re Villarreal), 413 B.R. 633, 641 (Bankr. S.D. Tex. 2009)\n(\u201cthe decisions of one district judge do not bind another judge of the same court \u2026. [A bankruptcy\ncourt] operates as a unit of the District Court \u2026. The majority of courts that have considered the\nissue have concluded that stare decisis does not apply to the decisions of the district court.\u201d)\n(citations omitted); In re Romano, 350 B.R. 276, 279 (Bankr. E.D. La. 2005) (\u201c[A] single decision\nof a district court in this multi-judge district is not binding upon [a bankruptcy court]\u201d).\n\n\n4865-8321-1406.12 36027.003 34\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 42 of 55 PageID 7871\n\n\n\nlaw. See Laird v. Integrated Res., 897 F.2d 826, 837 (5th Cir. 1990) (\u201cThe Supreme\n\nCourt has recognized the investment advisers\u2019 fiduciary status. Courts may refer to\n\nthese cases instead of state analogies in deciding whether this status prohibits\n\nparticular conduct. And, because state law is not considered, uniformity is\n\npromoted.\u201d); Steadman v. SEC, 603 F.2d 1126, 1142 (5th Cir. 1979) (\u201c[T]he purpose\n\nof the IAA \u2026 was to regulate the \u2018delicate fiduciary nature of an investment advisory\n\nrelationship.\u2019 \u2026 We do not think this overall purpose is a warrant to read section\n\n206 \u2026 of the IAA \u2026 as the vehicle to reach all breaches of fiduciary trust.\u201d); see\n\nalso Belmont v. MB Inv. Partners, 708 F.3d 470, 502 (3d Cir. 2013) (\u201cWith the\n\nexception of a private remedy [under Section 215], \u2018the [IAA] confers no other\n\nprivate causes of action, legal or equitable.\u2019 That reality ought to call into serious\n\nquestion whether a limitation in federal law can be circumvented simply by hanging\n\nthe label \u2018state law\u2019 on an otherwise forbidden federal claim.\u201d); NexPoint, 2023 U.S.\n\nApp. LEXIS 23756, at *10-14 (prohibiting the use of Section 215 to create a\n\n\u201cbackdoor\u201d cause of action under Section 206).\n\n Regardless, in Douglass, the plaintiff properly pled all elements of a Texas\n\nfiduciary duty claim. Douglass, 900 F. Supp. 2d at 751-52. Here, even assuming\n\nDouglass applies, Appellants still failed to plead (a) breach of fiduciary duty and (b)\n\ninjury from such breach and thus failed to state a claim.\n\n\n\n\n4865-8321-1406.12 36027.003 35\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 43 of 55 PageID 7872\n\n\n\n Appellants Fail to Plead a Breach of Contract Claim in Count 2\n\n In addition to finding Count 2 was barred by judicial estoppel, the Bankruptcy\n\nCourt correctly found that it failed to state a plausible claim. As found by the\n\nBankruptcy Court, the Settlement and related transfer of the interests to an HCM\n\naffiliate \u201cwas permitted under the plain and unambiguous terms of the HCLOF\n\nMembers Agreement\u201d and the ROFR did not apply. ROA.77-78. Section 6.1 of the\n\nMembers Agreement grants members the unconditional right to transfer interests to\n\nan \u201cAffiliate of an initial Member.\u201d ROA.4352-53. Section 6.2 sets forth the ROFR\n\nand has two exceptions: (i) transfers to \u201caffiliates of an initial Member\u201d from\n\nMembers other than CLOH and the \u201cHighland Principals\u201d and (ii) transfers from\n\nCLOH or a Highland Principal to (a) HCM, (b) HCM\u2019s \u201cAffiliates,\u201d or (c) another\n\nHighland Principal. ROA.4353. \u201cAffiliate\u201d is defined as, \u201cwith respect to a person,\n\n(i) any other person who, directly or indirectly, is in control of, or controlled by, or\n\nis under common control with, such person \u2026.\u201d ROA.4347. A \u201cMember\u201d is a\n\n\u201cholder of shares in the Company.\u201d ROA.4348. The \u201cinitial Member[s]\u201d are the\n\ninitial Members listed on the first page of the Members Agreement and include\n\nHCM, HarbourVest, and CLOH. ROA.4346. Because HarbourVest transferred its\n\ninterests directly to HCM\u2019s subsidiary\u2014an Affiliate of an initial Member\u2014the\n\ntransfer was permitted, without restriction, under section 6.1 and satisfied the\n\nexception to the ROFR in section 6.2. ROA.77-78.\n\n\n\n4865-8321-1406.12 36027.003 36\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 44 of 55 PageID 7873\n\n\n\n To avoid the Members Agreement, Appellants argue the Settlement\n\nAgreement \u201cconstitutes an offer and sale to [HCM]\u201d that \u201cfacially violated Section\n\n6.2.\u201d Appellants misread the Settlement Agreement and the Members Agreement\n\nand fabricate transfers and obligations that never existed. As found by the\n\nBankruptcy Court, HarbourVest directly transferred its interests to HCM\u2019s\n\nsubsidiary. Appellants also rely on an \u201coffer and sale,\u201d but, as discussed above, there\n\nwas neither an offer nor a sale. Rather, the transfer of the interests was but one\n\ncomponent of a complete Settlement effectuating HarbourVest\u2019s desire for recission\n\nand HCM\u2019s need to resolve bankruptcy claims.\n\n Appellants\u2019 pleading is also defective because it failed to plead actual\n\ndamages, simply contending that \u201chad plaintiff been allowed to do so, it would have\n\nobtained the interests.\u201d See, e.g., ROA.121. Such conclusory allegations ignore that\n\nCLOH never offered to purchase the HCLOF interests and, in any event, are\n\ninsufficient to state a claim. See Snowden v. Wells Fargo Bank, N.A., 2019 WL\n\n587304, at *6 (N.D. Tex. Jan. 18, 2019), adopted by 2019 U.S. Dist. LEXIS 22982\n\n(N.D. Tex. Feb. 12, 2019) (actual damages inadequately pled); Little v. KPMG LLP,\n\n2008 U.S. Dist. LEXIS 26281, at *15 (W.D. Tex. Jan. 22, 2008) (lost profits claim\n\n\u201cspeculative and conjectural.\u201d)\n\n\n\n\n4865-8321-1406.12 36027.003 37\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 45 of 55 PageID 7874\n\n\n\n Appellants Fail to Plead a Claim for Negligence in Count 3\n\n Appellants allege HCM negligently breached its duty to Appellants under the\n\nIAA and argues that the Bankruptcy Court somehow sua sponte dismissed Count 3.\n\nThose claims are false. HCM argued that Appellants\u2019 breach of fiduciary claim (a)\n\nwas barred by the Plan, (b) was duplicative of Appellants\u2019 other Counts, and (c) was,\n\nin any event, inadequately pled. The Bankruptcy Court agreed. ROA.72.\n\n The Plan exculpated HCM for, inter alia, all \u201cCauses of Action\u201d arising from\n\nthe administration of the Bankruptcy Case unless such conduct constituted \u201cbad\n\nfaith, gross negligence, criminal misconduct, or willful misconduct.\u201d ROA.2432-33.\n\nAs defined in the Plan, \u201cCauses of Action\u201d include \u201cany claim for breach of contract\n\nor breach of duties imposed by law or equity.\u201d ROA.2389. Count 3 asserts a \u201cCause\n\nof Action,\u201d i.e., a claim for breach of contract or duty, and the Settlement was\n\nindisputably part of the \u201cadministration of the Chapter 11 Case.\u201d HCM has therefore\n\nbeen expressly exculpated from Appellants\u2019 claim for negligence. 19\n\n\n\n\n19\n Exculpation provisions similar to those in the Plan are common in bankruptcy. See, e.g.,\nFindings of Fact, Conclusions of Law, and Order (i) Approving the Debtors\u2019 Disclosure Statement\nand Disclosure Statement Supplement on a Final Basis and (ii) Confirming the Fourth Amended\nJoint Chapter 11 Plan of Reorganization of Party City Holdco Inc. and Its Debtor Affiliates, Case\nNo. 23-90005 (DRJ), Docket No. 1701, \u00b6 43 (Bankr. S.D. Tex. Sept. 6, 2023) (citing NexPoint and\nexculpating debtor, among others, for \u201cclaims on contracts or for breaches of duties imposed by\nlaw\u201d); Order Approving the Debtors\u2019 Disclosure Statement and Confirming the Third Amended\nJoint Chapter 11 Plan of Reorganization of Cineworld Group PLC and Its Debtor Subsidiaries,\nCase No. 22-90726 (MI), Docket No. 1982, \u00b6 52 (Bankr. S.D. Tex. Jun. 28, 2023) (same).\n\n\n4865-8321-1406.12 36027.003 38\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 46 of 55 PageID 7875\n\n\n\n To avoid the Plan, Appellants argue, without citation or authority, that the\n\nPlan cannot exculpate HCM from a \u201cfederally imposed duty which is unwaivable\n\nunder 15 U.S.C. \u00a7 80b-15(a).\u201d Br. at 34 (emphasis in original). But the Plan\u2014and\n\nits exculpation clause\u2014is not a waiver. The Plan is a federal court order, and the\n\nexculpation provision was expressly affirmed as to HCM by the Fifth Circuit over\n\nthe objection of other Dondero-controlled entities. NexPoint, 48 F.4th at 437-38.\n\nAppellants cannot collaterally attack the Plan or its exculpation provision through\n\nthis Appeal. Id. at 438 n.15 (\u201cWe lack jurisdiction to consider collateral attacks on\n\nfinal bankruptcy orders even when it concerns whether the court properly exercised\n\njurisdiction or authority at that time\u201d) (citing Travelers Indem. Co. v. Bailey, 557\n\nU.S. 137 (2009); In re Linn Energy, L.L.C., 927 F.3d 862 (5th Cir. 2019)).\n\n Even absent exculpation, Appellants fail to state a claim. \u201cThe elements of a\n\nnegligence claim under Texas law are: \u2018(1) a legal duty on the part of the defendant;\n\n(2) breach of that duty; and (3) damages proximately resulting from that breach.\u2019\u201d\n\nSivertsen v. Citibank, N.A. as Tr. for Registered Holders of WAMU Asset-Back\n\nCertificates WAMU Series No. 2007-HE2 Tr., 390 F. Supp. 3d 769, 789 (E.D. Tex.\n\n2019). The negligence allegations (ROA.121-22) are speculative, conclusory, and\n\nfail to allege proximate cause; Count 3 must be dismissed. Rodgers v. City of\n\nLancaster Police, 2017 U.S. Dist. LEXIS 14588, *37-37 (N.D. Tex. Jan. 6, 2017).\n\nTo the extent Count 3 is premised on a breach of the Members Agreement, the DAF\n\n\n\n4865-8321-1406.12 36027.003 39\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 47 of 55 PageID 7876\n\n\n\nAgreement, or the IAA, it is duplicative of the other Counts and fails for the reasons\n\nset forth above.\n\n The Bankruptcy Court Properly Dismissed Count 4 (RICO) with\n Prejudice\n\n In the Renewed MTD, HCM argued that Appellants failed to plead any of the\n\nelements required to support a RICO claim (\u201c1) the conduct; 2) of an enterprise; 3)\n\nthrough a pattern; 4) of racketeering activity\u201d) and that Count 4 was impermissibly\n\npredicated on a securities law violation. ROA.3868-73. Instead of substantively\n\nresponding, Appellants, unilaterally and without leave of the Bankruptcy Court,\n\ndeclared they were \u201cdismiss[ing] the RICO claim under [FRCP] 41(a)\u201d without\n\nprejudice and \u201creserv[ing] the right to bring such claim\u201d in the future. ROA.4440.\n\nFRCP 41(a), however, only permits a plaintiff \u201cto dismiss an action,\u201d not a single\n\nclaim. Nat\u2019l Horsemen\u2019s Benevolent & Protective Ass\u2019n v. Black, 2022 U.S. App.\n\nLEXIS 31958, at *19, n.15 (5th Cir. Nov. 18, 2022). The Bankruptcy Court was thus\n\njustifiably \u201cconfused and concerned a bit about the procedure employed\u201d by\n\nAppellants. ROA.73.\n\n Because Count 4 was not dismissed (Appellants could not dismiss a single\n\nCount), the Bankruptcy Court was required to rule on the merits. In doing so, the\n\nBankruptcy Court correctly found that (a) Appellants\u2019 RICO Count was\n\nimpermissibly premised on an allegation of securities fraud and thus barred by the\n\nexpress language of 18 U.S.C. \u00a71964(c) and (b) Appellants otherwise failed to allege\n\n\n4865-8321-1406.12 36027.003 40\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 48 of 55 PageID 7877\n\n\n\n(i) a pattern of racketeering activity and (ii) damages. ROA.74-77. The Bankruptcy\n\nCourt\u2019s dismissal of Count 4 with prejudice should be upheld.\n\n Appellants Fail to Plead Tortious Interference in Count 5\n\n The Bankruptcy Court properly found Count 5 (Tortious Interference), which\n\nwas premised on the alleged violation of the Members Agreement and alleged\n\nconcealment of the value of HCLOF (ROA.126-27), was duplicative of Count 2\n\n(Breach of Contract). The Bankruptcy Court also properly found that because the\n\nROFR did not apply to the Settlement (and thus there was no breach of contract),\n\nthere was no tortious interference. ROA.78 (\u201cTortious interference with contract\n\nclaims cannot exist in the absence of a contract right with which a defendant can\n\ninterfere\u201d) (citing WickFire, L.L.C. v. Woodruff, 989 F.3d 343, 354 (5th Cir. 2021)\n\n(\u201c[T]o prevail on an interference claim, the plaintiff must \u2018present evidence that\n\nsome obligatory provision of a contract [was] breached\u2019\u201d)). Appellants have no\n\nresponse to this finding other than to allege HCM\u2019s supposed \u201cself-dealing and\n\nmisleading statements\u201d as to the value of the interests were themselves somehow a\n\nviolation of the ROFR. But, as discussed above, allegations about hiding \u201cvalue\u201d\n\nhave nothing to do with whether the ROFR applied to the Settlement. ROA.65 (\u201cThis\n\nallegation is irrelevant because the \u2018Right of First Refusal\u2019 \u2026 would not be\n\ndependent on the value of the \u2026 interests.\u201d)\n\n\n\n\n4865-8321-1406.12 36027.003 41\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 49 of 55 PageID 7878\n\n\n\n The Bankruptcy Court also correctly found that Appellants failed to \u201cexplain\n\nhow [HCM], a party to the HCLOF Members Agreement, could have interfered with\n\nit; only third parties can interfere with a contract.\u201d ROA.78 (citing 1st & Trinity\n\nSuper Majority, LLC v. Milligan, 657 S.W.3d 349, 372 (Tex. App. 2022). Appellants\n\ndid not (and could not) address this finding. 20\n\nC. Appellants Request to Amend Under FRCP 15 Is Procedurally Improper\n\n Appellants request leave to amend the Complaint under FRCP 15(a); that\n\nrequest is procedurally improper. The Counts are bankruptcy claims governed by the\n\nBankruptcy Code, not FRCP 15(a).\n\n Each Count asserts that HCM violated its fiduciary, contractual, and other\n\nobligations to Appellants during the Bankruptcy Case while HCM was a debtor-in-\n\npossession and under Bankruptcy Court supervision. Accordingly, Appellants, if\n\nthey have a claim, have an \u201cadministrative claim\u201d against HCM under the Supreme\n\nCourt\u2019s \u201cReading exception,\u201d which provides that \u201cadministrative claims\u201d include\n\nclaims arising from a debtor-in-possession\u2019s postpetition negligence, tortfeasance,\n\nand malfeasance. See Reading Co. v. Brown, 391 U.S. 471, 478-79 (1968) (holding\n\nthat if a debtor commits a tort or harms a non-debtor the injured party\u2019s claim is an\n\n\n\n20\n Appellants also failed to allege proximate causation or any actual damage sustained as a result\nof the alleged interference. Specialties of Mexico Inc. v. Masterfoods USA, 2010 U.S. Dist. LEXIS\n58782, at *15 (S.D. Tex. June 14, 2010) (The elements of tortious interference with contract are:\n\u201c(1) the existence of a contract subject to interference, (2) willful and intentional interference, (3)\nthat proximately causes damage, and (4) actual damage or loss.\u201d)\n\n\n4865-8321-1406.12 36027.003 42\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 50 of 55 PageID 7879\n\n\n\n\u201cadministrative claim\u201d); In re Al Copeland Enters., Inc., 991 F.2d 233, 239 (5th Cir.\n\n1993) (\u201c[T]hose injured during \u2026 administration of an estate are entitled to an\n\nadministrative priority [claim] regardless of whether their injury was caused by a\n\ntort or other wrongdoing\u201d). The \u201cReading exception\u201d is routinely applied.\n\nJack/Wade Drilling, Inc. (In re Jack/Wade Drilling, Inc.), 258 F.3d 385, 388 (5th\n\nCir. 2001) (\u201cThe Reading exception has survived Congressional amendments to the\n\nbankruptcy code and been recognized and applied by nearly every Court of Appeal\n\nin the nation.\u201d); Charitable DAF Fund, L.P. v. Highland Cap. Mgmt., L.P. (In re\n\nHighland Cap. Mgmt., L.P.), 2022 Bankr. LEXIS 2780, at 18-21 (Bankr. N.D. Tex.\n\nSept. 30, 2022) ) (finding DAF\u2019s allegation that HCM violated its fiduciary duties\n\nunder the IAA by its postpetition management of an investment vehicle were\n\n\u201cadministrative claims\u201d under Reading). 21\n\n Accordingly, and as Appellants concede, each Count constitutes an\n\n\u201cadministrative claim\u201d against HCM\u2019s estate, i.e. a bankruptcy claim governed by,\n\namong other provisions, 11 U.S.C. \u00a7\u00a7 503 and 507. Br. at 47 (\u201cWhat is more, the\n\ncase was brought and was before the bankruptcy court prior to the plan effectiveness\n\nor exculpation became effective. As an administrative claim, it would be\n\n\n21\n The claims asserted by DAF in Charitable DAF Fund, L.P. v. Highland Capital Management,\nL.P. (In re Highland Capital Management, L.P.), Adv. Proc. No. 22-03052-sgj, Docket No. 1\n(Bankr. N.D. Tex. 2022) arose from HCM\u2019s alleged breach of its fiduciary duty to DAF as an\ninvestor in a different HCM-managed fund and were largely duplicative of the Counts. DAF\u2019s\ncounsel in that action is the same as Appellants\u2019 counsel.\n\n\n4865-8321-1406.12 36027.003 43\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 51 of 55 PageID 7880\n\n\n\npreserved.\u201d) (emphasis added); see also ROA.57 (\u201c[All Counts] are all claims being\n\nasserted against Highland relating to its actions during its Chapter 11 bankruptcy\n\ncase .\u2026 All of the causes of action \u2026 are tantamount to the assertion of\n\nadministrative expense claims against a Chapter 11 Debtor.\u201d) (emphasis in original).\n\n Amendment of a bankruptcy claim, including an \u201cadministrative claim, is\n\ngoverned by the Bankruptcy Code, not FRCP 15(a). Under applicable case law,\n\nwhether to allow amendment of a claim is left to the bankruptcy court\u2019s discretion\n\nafter assessing, inter alia, (1) whether the amending party is \u201cattempting to stray\n\nbeyond the parameters of the original proof of claim and effectively file a \u2018new\u2019\n\nclaim\u201d and (2) \u201cthe degree and incidence of prejudice\u201d caused by the delay in\n\namendment. Kolstad, 928 F.2d at 172, 175 n.7; see also CLO Holdco, Ltd. v.\n\nKirschner (In re Highland Cap. Mgmt., L.P.), 2023 U.S. Dist. LEXIS 87842, at *13\n\n(N.D. Tex. May 18, 2023) (same). A court exercises its discretion \u201cwith due\n\nconsideration for the current stage of the bankruptcy\u201d with particular attention paid\n\nto whether the plan has been confirmed and bar dates have passed. CLO Holdco,\n\n2023 U.S. Dist. LEXIS 87842, at *13-14. \u201c[O]nce the plan is confirmed, further\n\namendments \u2018should be allowed only for compelling reasons.\u2019\u201d Id. (citing Holstein\n\nv. Brill, 987 F.2d 1268, 1270 (7th Cir. 1993)); see also Eubanks v. FDIC, 977 F.2d\n\n166, 170 (5th Cir. 1992).\n\n\n\n\n4865-8321-1406.12 36027.003 44\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 52 of 55 PageID 7881\n\n\n\n Appellants have not pled Kolstad nor could they satisfy it. The Plan was\n\nconfirmed in February 2021 and became effective in August 2021. The applicable\n\nbar date was September 25, 2021. ROA.2387; see also Charitable DAF Fund, 2022\n\nBankr. LEXIS 2780, at *12. Notwithstanding that all claims arising prior to August\n\n2021 were discharged pursuant to 11 U.S.C. \u00a7 1141 (ROA.2432; NexPoint, 48 F.4th\n\nat 433 (affirming discharge over Dondero objections)),22 Appellants admit they want\n\nto amend the Complaint to assert new claims (Br. at 43 (\u201cPlaintiffs could further add,\n\nif necessary, other acts by [HCM] wherein it has sold assets and used the funds to\n\npay off its own creditors \u2026.\u201d)).\n\n Amendment would also be futile. The administrative bar date has passed and\n\nHCM has been discharged and exculpated. New claims (and amendments that create\n\nnew claims) are barred by the Plan and the Confirmation Order. Appellants cannot\n\ncircumvent the Plan via FRCP 15. See, e.g., Charitable DAF Fund, 2022 Bankr.\n\nLEXIS 2780, at *35-37 (denying leave to amend as futile when amended claim\n\nwould be timed barred by the Plan).\n\n\n\n\n22\n The Complaint was referred to the Bankruptcy Court prior to the administrative claims bar date\nand therefore allowed to proceed as an administrative claim. Like all claims, however, it is subject\nto the Plan, including the exculpation provision.\n\n\n4865-8321-1406.12 36027.003 45\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 53 of 55 PageID 7882\n\n\n\nD. Appellants\u2019 Request for Reconsideration of the Withdrawal Order Is\n Procedurally Improper\n\n Appellants request that, if the Order is reversed, this Court reconsider the\n\nWithdrawal Order. Br. at 44. Motions to reconsider are governed by FRCP 60 and\n\nrequire a motion and appropriate briefing schedule. FRCP 60(b) (\u201cOn motion and\n\njust terms, the court may relieve a party \u2026 from a final \u2026 order\u201d). Even if\n\nAppellants\u2019 request were procedurally proper, it is not yet ripe for adjudication.\n\nAppellants ask this Court to reconsider the Withdrawal Order only if the Order is\n\noverturned. In the unlikely event that this Court overturns the Order, Appellants can\n\nbring a motion to reconsider the Withdrawal Order under FRCP 60. 23\n\n VII. CONCLUSION\n\n The Bankruptcy Court properly dismissed the Complaint based on judicial\n\nestoppel and failure to state a claim. This Court should deny the Appeal and affirm\n\nthe Order.\n\n\n\n\n23\n HCM reserves all rights with respect to any such motion.\n\n\n4865-8321-1406.12 36027.003 46\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 54 of 55 PageID 7883\n\n\n Dated: December 22, 2023 PACHULSKI STANG ZIEHL & JONES LLP\n\n Jeffrey N. Pomerantz (CA Bar No. 143717)\n John A. Morris (NY Bar No. 2405397)\n Gregory V. Demo (NY Bar No. 5371992)\n Hayley R. Winograd (NY Bar No. 5612569)\n 10100 Santa Monica Blvd., 13th Floor\n Los Angeles, CA 90067\n Telephone: (310) 277-6910\n Facsimile: (310) 201-0760\n Email: jpomerantz@pszjlaw.com\n jmorris@pszjlaw.com\n gdemo@pszjlaw.com\n hwinograd@pszjlaw.com\n\n -and-\n HAYWARD PLLC\n /s/ Zachery Z. Annable\n Melissa S. Hayward (Texas Bar No. 24044908)\n Zachery Z. Annable (Texas Bar No. 24053075)\n 10501 N. Central Expy, Ste. 106\n Dallas, Texas 75231\n Telephone: (972) 755-7100\n Facsimile: (972) 755-7110\n Email: MHayward@HaywardFirm.com\n ZAnnable@HaywardFirm.com\n\n Counsel for Highland Capital Management, L.P.\n\n\n\n\n4865-8321-1406.12 36027.003 47\n\f Case 3:23-cv-01503-B Document 27 Filed 12/22/23 Page 55 of 55 PageID 7884\n\n\n\n CERTIFICATE OF COMPLIANCE WITH RULE 8015\n\n This document complies with the type-volume limit of Fed. R. Bankr. P.\n\n8015(a)(7)(B)(i) because, according to Microsoft Word, it contains 10,947 words,\n\nexcluding the portions of the document exempted by Fed. R. Bankr. P. 8015(g).\n\n\n By: /s/ Zachery Z. Annable\n Zachery Z. Annable\n\n\n CERTIFICATE OF SERVICE\n\n I hereby certify that, on December 22, 2023, the foregoing document was\n\nserved electronically via the Court\u2019s CM/ECF system on those parties registered to\n\nreceive such service.\n\n\n /s/ Zachery Z. Annable\n Zachery Z. Annable\n\n\n\n\n4865-8321-1406.12 36027.003 48\n\f","ocr_status":2,"date_upload":"2023-12-26T07:48:13.416072-08:00","document_number":"27","attachment_number":null,"pacer_doc_id":"177016497955","is_available":true,"is_free_on_pacer":null,"is_sealed":null,"document_type":1,"description":"","acms_document_guid":""}],"date_created":"2023-12-26T07:45:05.972324-08:00","date_modified":"2024-10-18T11:27:38.206583-07:00","date_filed":"2023-12-22","time_filed":null,"entry_number":27,"recap_sequence_number":"2023-12-22.002","pacer_sequence_number":88,"description":"Appellee's BRIEF by Highland Capital Management LP. (Annable, Zachery) (Entered: 12/22/2023)","tags":[]},{"resource_uri":"https://www.courtlistener.com/api/rest/v4/docket-entries/374123450/","id":374123450,"docket":"https://www.courtlistener.com/api/rest/v4/dockets/67564951/","recap_documents":[{"resource_uri":"https://www.courtlistener.com/api/rest/v4/recap-documents/381692151/","id":381692151,"tags":[],"absolute_url":"/docket/67564951/26/charitable-daf-fund-lp-v-highland-capital-management-lp/","date_created":"2023-12-26T07:45:05.942131-08:00","date_modified":"2024-10-18T11:27:38.193977-07:00","sha1":"25c5906316206a81502b9e3f1478cc29f4ad98d7","page_count":4,"file_size":185334,"filepath_local":"recap/gov.uscourts.txnd.378781/gov.uscourts.txnd.378781.26.0.pdf","filepath_ia":"https://archive.org/download/gov.uscourts.txnd.378781/gov.uscourts.txnd.378781.26.0.pdf","ia_upload_failure_count":null,"thumbnail":null,"thumbnail_status":0,"plain_text":" Case 3:23-cv-01503-B Document 26 Filed 12/22/23 Page 1 of 4 PageID 7826\n\n\n\n Case No. 3:23-cv-1503-B\n\n\n IN THE UNITED STATES DISTRICT COURT\n FOR THE NORTHERN DISTRICT OF TEXAS\n DALLAS DIVISION\n\n\nIn re: HIGHLAND CAPITAL MANAGEMENT, L.P.,\n\nReorganized Debtor.\n\n\nCHARITABLE DAF FUND, L.P. and CLO HOLDCO, LTD., directly and derivatively,\n\n Appellants,\n v.\n\nHIGHLAND CAPITAL MANAGEMENT, L.P., HIGHLAND HCF ADVISOR, LTD., and\nHIGHLAND CLO FUNDING, LTD., nominally,\n\nAppellees.\n\n\n On Appeal from the United States Bankruptcy Court for the Northern\n District of Texas, Dallas Division, Adv. Pro. No. 21-03067-sgj\n Hon. Stacey G. C. Jernigan\n\n\n APPELLEE\u2019S CERTIFICATE OF INTERESTED PERSONS\n PURSUANT TO LOCAL BANKRUPTCY RULE 8012.1\n\n\nPACHULSKI STANG ZIEHL & JONES LLP HAYWARD PLLC\nJeffrey N. Pomerantz (CA Bar No. 143717) Melissa S. Hayward (Texas Bar No. 24044908)\nJohn A. Morris (NY Bar No. 2405397) Zachery Z. Annable (Texas Bar No. 24053075)\nGregory V. Demo (NY Bar No. 5371992) 10501 N. Central Expy, Ste. 106\nHayley R. Winograd (NY Bar No. 5612569) Dallas, Texas 75231\n10100 Santa Monica Blvd., 13th Floor Telephone: (972) 755-7100\nLos Angeles, CA 90067 Facsimile: (972) 755-7110\nTelephone: (310) 277-6910\nFacsimile: (310) 201-0760\n\n\n Counsel for Highland Capital Management, L.P.\n\f Case 3:23-cv-01503-B Document 26 Filed 12/22/23 Page 2 of 4 PageID 7827\n\n\n\n Highland Capital Management, L.P. (the \u201cAppellee\u201d or \u201cReorganized Debtor\u201d), appellee\n\nin the above-referenced matter, hereby submits the following Certificate of Interested Persons (the\n\n\u201cCIP\u201d) pursuant to Rule 8012.1 of the Local Bankruptcy Rules for the Northern District of Texas:\n\n 1. Appellee Highland Capital Management, L.P., the Reorganized Debtor in the\n\nbankruptcy case captioned In re Highland Capital Management, L.P., case no. 19-34054-sgj11\n\n(the \u201cBankruptcy Case\u201d), pending in the United States Bankruptcy Court of the Northern District\n\nof Texas.\n\n 2. Appellants Charitable DAF Fund, L.P. and CLO Holdco, Ltd., and their counsel,\n\nSbaiti & Company PLLC (Mazin A. Sbaiti and Jonathan Bridges).\n\n The Reorganized Debtor reserves the right to amend or supplement this CIP as and if\n\nnecessary or appropriate.\n\n [Remainder of Page Intentionally Blank]\n\f Case 3:23-cv-01503-B Document 26 Filed 12/22/23 Page 3 of 4 PageID 7828\n\n\n\nDated: December 22, 2023 PACHULSKI STANG ZIEHL & JONES LLP\n\n Jeffrey N. Pomerantz (CA Bar No. 143717)\n John A. Morris (NY Bar No. 2405397)\n Gregory V. Demo (NY Bar No. 5371992)\n Hayley R. Winograd (NY Bar No. 5612569)\n 10100 Santa Monica Blvd., 13th Floor\n Los Angeles, CA 90067\n Telephone: (310) 277-6910\n Facsimile: (310) 201-0760\n Email: jpomerantz@pszjlaw.com\n jmorris@pszjlaw.com\n gdemo@pszjlaw.com\n hwinograd@pszjlaw.com\n\n -and-\n HAYWARD PLLC\n /s/ Zachery Z. Annable\n Melissa S. Hayward (Texas Bar No. 24044908)\n Zachery Z. Annable (Texas Bar No. 24053075)\n 10501 N. Central Expy, Ste. 106\n Dallas, Texas 75231\n Telephone: (972) 755-7100\n Facsimile: (972) 755-7110\n Email: MHayward@HaywardFirm.com\n ZAnnable@HaywardFirm.com\n\n Counsel for Highland Capital Management, L.P.\n\f Case 3:23-cv-01503-B Document 26 Filed 12/22/23 Page 4 of 4 PageID 7829\n\n\n\n\n CERTIFICATE OF SERVICE\n\n I hereby certify that, on December 22, 2023, the foregoing document was served\nelectronically via the Court\u2019s CM/ECF system on those parties registered to receive such service.\n\n /s/ Zachery Z. Annable\n Zachery Z. Annable\n\f","ocr_status":2,"date_upload":"2023-12-26T07:46:57.937665-08:00","document_number":"26","attachment_number":null,"pacer_doc_id":"177016497945","is_available":true,"is_free_on_pacer":null,"is_sealed":null,"document_type":1,"description":"","acms_document_guid":""}],"date_created":"2023-12-26T07:45:05.922690-08:00","date_modified":"2024-10-18T11:27:38.182151-07:00","date_filed":"2023-12-22","time_filed":null,"entry_number":26,"recap_sequence_number":"2023-12-22.001","pacer_sequence_number":86,"description":"CERTIFICATE OF INTERESTED PERSONS/DISCLOSURE STATEMENT by Highland Capital Management LP. (Clerk QC note: No affiliate entered in ECF). (Annable, Zachery) (Entered: 12/22/2023)","tags":[]},{"resource_uri":"https://www.courtlistener.com/api/rest/v4/docket-entries/372665250/","id":372665250,"docket":"https://www.courtlistener.com/api/rest/v4/dockets/67564951/","recap_documents":[{"resource_uri":"https://www.courtlistener.com/api/rest/v4/recap-documents/380205147/","id":380205147,"tags":[],"absolute_url":"/docket/67564951/25/charitable-daf-fund-lp-v-highland-capital-management-lp/","date_created":"2023-12-07T13:24:21.296614-08:00","date_modified":"2024-10-18T11:27:38.165326-07:00","sha1":"","page_count":null,"file_size":null,"filepath_local":null,"filepath_ia":"","ia_upload_failure_count":null,"thumbnail":null,"thumbnail_status":0,"plain_text":"","ocr_status":null,"date_upload":null,"document_number":"25","attachment_number":null,"pacer_doc_id":"177016459553","is_available":false,"is_free_on_pacer":null,"is_sealed":null,"document_type":1,"description":"Order AND ~Util - Set/Clear Flags","acms_document_guid":""}],"date_created":"2023-12-07T13:24:21.282730-08:00","date_modified":"2024-10-18T11:27:38.152555-07:00","date_filed":"2023-12-07","time_filed":"14:48:48","entry_number":25,"recap_sequence_number":"2023-12-07.001","pacer_sequence_number":83,"description":"Special Order 3-351: Effective December 7, 2023, active cases assigned or referred to Magistrate Judge Irma C. Ramirez will be transferred to the dockets of other magistrate judges in the Dallas Division as outlined on Exhibit A to this order. This case has been reassigned pursuant to Special Order No. 3-351. (The clerk has mailed a copy to all non-ECF users.) (Ordered by Chief District Judge David C Godbey on 12/7/2023) (twd) (Entered: 12/07/2023)","tags":[]}],"entries_total":"https://www.courtlistener.com/api/rest/v4/docket-entries/?count=on&docket=67564951&page_size=40"}